2016 (6) TMI 488 - AT - Income Tax

Addition on account of carriage inward expenses - Held that - AO before disallowing the expenses has failed to consider the claim of the assessee of such expenses in the earlier years to arrive at the view whether the expenses claimed are more or less. The AO has not pointed out any flaw in the books of accounts. The AO should have verified these expenses with regard to the purchase claimed by the assessee. We also find that the vouchers in support of the expenses are also placed. In our view Revenue cannot resort to ad hoc and arbitrary disallowance of expenses for the purpose of arriving at the alleged undisclosed income especially when there is no incriminating evidence found against the assessee to establish that the assessee had in any manner inflated the expenses and not accounted for the correct income. Therefore an assessment cannot be made to disallow or add back expenses on ad hoc basis and that too to make arbitrary additions to the alleged income as the onus is on the Revenue to prove the actual expenditure and then establish that the source of money spent for such expenditure had not been satisfactorily explained by the assessee. Therefore considering the totality of the case we are of the considered view not to interfere in the order of ld. CIT(A) - Decided against revenue Addition on account of bogus purchase - Held that - From the facts of the case we find that the AO has disallowed the purchases merely on the ground of non service of notice u/s. 133(6) of the Act. In our view the AO has failed to appreciate other circumstances of the case such as there was no flaw in the books of accounts there was no adverse comments in the audit report duly certified by the Chartered Accountant the confirmation received from the bank regarding the payment made to the aforesaid parties in response to the notice u/s. 133(6) of the Act. In the instant case all the details relevant to the transaction for the purchase of the materials are very much placed on record. Therefore in our considered view merely notice issued u/s. 133(6) of the Act cannot be the sole ground for making the disallowance - Decided against revenue Addition on account of bogus sundry creditors - Held that - AO in the instant case has failed to verify the payment made to the parties through banking channel from the party. In support of payment the assessee has submitted the bank statement which is placed on pages 143 to 172 of the paper book. Ld. DR has also failed to bring anything contrary to the finding of Ld. CIT(A) the PAN of the assessee was very much available to the AO and the AO failed to reconcile the amount of creditor s by way of issuing notice u/s. 133(6) of the Act to the AO having jurisdiction over the party. The AO in the instant case has treated the balance of the party as cash credit merely on the ground that the notice issued u/s. 133(6) of the Act was returned as unserved. The AO has not rejected the purchase bill as submitted by assessee at the time of framing of assessment under consideration. The order of AO is silent about the copy of the ledger and confirmation of account by the party submitted by the assessee. Therefore in our considered view the amount of credit balance as appearing in the ledger of the party cannot be regarded as unexplained cash credit. - Decided against revenue

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Disallowance of carriage inward expenses.
3. Deletion of addition on account of bogus purchases.
4. Deletion of addition on account of undisclosed investment through purchases.
5. Violation of Rule 46A of IT Rules, 1962 by admitting fresh evidence.
6. Deletion of addition on account of bogus sundry creditors.
7. Fair opportunity of hearing and denial of natural justice.

Issue-wise Detailed Analysis:

1. Delay in filing the appeal by the Revenue:
The Tribunal observed a delay of 14 days in the filing of the appeal by the Revenue. The delay was suitably explained and accompanied by an affidavit from the concerned official. The assessee had no objection to the condonation of the delay. The Tribunal, considering the facts and circumstances, condoned the delay.

2. Disallowance of carriage inward expenses:
The assessee claimed carriage inward charges amounting to ?8,24,320/-. The Assessing Officer (AO) disallowed 50% of these expenses due to non-verifiable handmade vouchers. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the disallowance to 25%, considering the volume of transactions and non-verifiable nature of vouchers. The Tribunal upheld the CIT(A)'s decision, stating that the Revenue cannot resort to ad hoc disallowances without incriminating evidence.

3. Deletion of addition on account of bogus purchases:
The AO disallowed purchases amounting to ?29,11,129/- as bogus, based on unserved notices issued under section 133(6) of the Income Tax Act. The CIT(A) deleted the addition, noting that the purchases were made through banking channels and supported by bills and confirmations. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to appreciate other circumstances and merely relied on unserved notices.

4. Deletion of addition on account of undisclosed investment through purchases:
The AO found discrepancies in the figures of purchases and sales reported by certain parties and disallowed ?2,00,547/- as undisclosed investment. The CIT(A) deleted the addition. The Tribunal, applying the same rationale as in the bogus purchases issue, upheld the CIT(A)'s decision, dismissing the Revenue's grounds of appeal.

5. Violation of Rule 46A of IT Rules, 1962 by admitting fresh evidence:
The Tribunal did not find any specific discussion on this issue in the provided text. The focus was primarily on the substantive issues of disallowances and additions made by the AO and their subsequent deletion by the CIT(A).

6. Deletion of addition on account of bogus sundry creditors:
The AO treated sundry creditors amounting to ?3,66,182/- as bogus due to unserved notices. The CIT(A) deleted the addition, noting that the transactions were supported by ledger accounts, purchase bills, and bank statements. The Tribunal upheld the CIT(A)'s decision, stating that the AO's action of accepting purchases but not corresponding sundry creditors was inconsistent.

7. Fair opportunity of hearing and denial of natural justice:
The Tribunal did not explicitly address this issue in the provided text. The focus remained on the specific disallowances and additions made by the AO and their subsequent deletion by the CIT(A).

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues. The Tribunal emphasized the need for proper verification and evidence before making disallowances and additions, and rejected the Revenue's reliance on unserved notices and ad hoc disallowances. The appeal by the Revenue was dismissed in its entirety.

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