2016 (8) TMI 317 - AT - Income Tax

Addition on account of difference in purchases made - Held that - The assessee duly reconciled the purchase of accounts. In addition to the above the assessee furnished further details and evidences to clear all the doubts which were duly considered by Ld. CIT(A) and detailed findings have been recorded, accepting the claim of the assessee that purchase are duly reconciled. Thus, after taking into account all the facts and evidences it was held by the Ld. CIT(A) that there was no difference. Accordingly, it was held that books of accounts were wrongly rejected by the AO. It was further held by the Ld. CIT(A) that if there were some unpaid amounts which were disallowable u/s 43B then the same can be made by the AO and for this purpose the issue has been sent back to the file of the AO. Under these circumstances, we find that Ld. CIT(A) has been quite fair and justified while addressing all the issues that were raised by the AO and the assessee. It is further noted by us during the course of hearing before us that Ld. DR could nor point out anything incorrect or wrong in the detailed findings recorded by the Ld. CIT(A) and therefore, we do not find any justification to make any interference in the order of the Ld. CIT(A) and the same is therefore upheld. - Decided against revenue Disallowance made on account of 1/3rd of various expenses - Held that - It is noted that books of accounts were produced by the assessee before the AO. But he was not satisfied with regard to the supporting evidences filed by the assessee and accordingly he made disallowance @ 1/3rd of the total expenses on estimate basis. During the course of hearing before us it was brought to our notice that in A.Y. 2008-09, disallowance has been made @ of 10% of these expenses which are identical in nature. Thus, taking into account all facts and circumstances of the case, we direct the AO to reduce the disallowance @ 10% of ₹ 35,59,716/- which comes to ₹ 3,55,972/-, the remaining disallowance is directed to be deleted. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Rejection of books of account and deletion of addition towards purchases.
2. Disallowance of 1/3rd of various expenses.

Issue-Wise Detailed Analysis:

1. Rejection of Books of Account and Deletion of Addition Towards Purchases:

The Revenue's appeal concerns the deletion of an addition of ?1,05,75,670/- made by the Assessing Officer (AO) due to discrepancies noted in the purchase account, sale account, and debtors account. The AO had rejected the books of accounts and estimated the income by applying a Gross Profit (G.P.) ratio of 15%.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who found no discrepancies after a detailed analysis and thus deleted the addition. The CIT(A) noted that the assessee had provided a reconciliation of purchases, sales, and debtor accounts, showing no differences. The CIT(A) also examined the G.P. chart of the past five years, noting that the G.P. of the current year (9.92%) was higher than the previous years (8.52%), making the AO's estimation of a 15% G.P. ratio unjustified.

The Tribunal upheld the CIT(A)'s findings, noting that the CIT(A) had carefully examined all issues and found no discrepancies in the purchases, sales, or debtors accounts. The Tribunal emphasized that the CIT(A)'s detailed findings were correct and that the Revenue could not point out any errors. Thus, the Tribunal upheld the CIT(A)'s decision to delete the addition and dismissed the Revenue's appeal.

2. Disallowance of 1/3rd of Various Expenses:

The assessee's appeal concerns the disallowance of 1/3rd of various expenses amounting to ?11,86,572/-. The AO made this disallowance on an ad-hoc basis, citing insufficient evidence to prove the genuineness of the expenses.

The assessee argued before the CIT(A) that all required information and details were provided during the assessment proceedings, and the disallowance was made without specific adverse observations. The CIT(A) upheld the AO's disallowance.

The Tribunal reviewed the facts and noted that the books of accounts were produced before the AO, who was not satisfied with the supporting evidence. However, the Tribunal observed that in the Assessment Year (A.Y.) 2008-09, a similar disallowance was made at 10% of the expenses. Considering this, the Tribunal directed the AO to reduce the disallowance to 10% of ?35,59,716/-, amounting to ?3,55,972/-, and delete the remaining disallowance. Thus, the assessee's appeal was partly allowed.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing a reduction in the disallowance of expenses to 10%. The order was pronounced in the open court on 29th June 2016.