2017 (8) TMI 24 - AT - Income Tax

Addition on account of purchases made from Suresh HYP Enterprises - 133(6) enquiry letter sent to that party came back un served because of incorrect address - Held that - As during the course of assessment proceedings, the AO has verified the books of accounts, bills, vouchers, master rolls, bed sheet and logbooks and on such verification, no defect in the books of the assessee was pointed out. The Assessing Officer made the whole addition by pointing out certain lacunas in the bank account of the suppliers of the assessee, which cannot be permitted. Merely because 133(6) notices issued to the party returned un-served though it was the same address, which was supplied by supplier while filing its income tax return, no fault can be put on the shoulder of assessee. Further, the ld CIT(A) confirmed the finding of the ld Assessing Officer without giving any reason but merely reiterating the findings of the Assessing Officer. In view of this the addition made by the ld Assessing Officer of ₹ 2657303/- from Suresh HYP Enterprises cannot be sustained and hence, deleted. In the result ground of the appeal of the assessee is allowed. Disallowance u/s 14A - Held that - As submitted that the assessee has not earned any exempt income during the year. The fact is also verifiable from page no. 2 and 3 of the computation of total income wherein the ld DR could not point out any exempt income. From the profit and loss account of the assessee also it is evident that assessee has not claimed any income under exemption. In view of the decision of the Hon ble Delhi High Court in Cheminvest Ltd Vs. Cit 2015 (9) TMI 238 - DELHI HIGH COURT wherein, it has been held that no disallowance can be made where no exemption is claimed. Therefore, in view of the above decision we direct AO to delete the disallowance u/s 14A of the Act. - Decided in favour of assessee. Disallowance of expenses as non-business purposes - Held that - Any expenditure which is not supported by proper bills and vouchers or if it is shown that such expenditure has not been incurred wholly and exclusively for the purposes of the business then definitely such expenditure is not allowable u/s 37(1) but for making disallowance of any expenditure it is for the revenue to show that such expenditure is personal in nature or incurred for any other object. In absence of any such finding the ad hoc disallowance made specifying certain percentage to which the assessee has not agreed at all is not sustainable. No instances noted by AO about any of the expenditure, which are not incurred for the purpose of business. Merely because telephone call register is not maintained or vehicle logbook is not available, expenses cannot be disallowed on ad hoc basis when the telephone is installed and used for the purpose of business and vehicles are also owned and used by the assessee for the purpose of business. The disallowance made are deleted - Decided in favour of assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition on account of purchases from Suresh HYP Enterprises.
3. Addition on account of purchases from Suresh HUP Enterprises.
4. Disallowance under Section 14A of the Income Tax Act.
5. Adhoc disallowances of various business expenditures.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 112 days. The assessee explained that the delay was due to the office assistant inadvertently not bringing the order to the notice of the assessee or his counsel. The Tribunal considered the explanation, supported by an affidavit, and found it bona fide. It referenced the Supreme Court's decision in Ramnath Sao Vs. Gobardhan Sao, emphasizing that a pedantic and hyper-technical approach should not defeat the valuable right to a decision on merit. Consequently, the delay was condoned, and the appeal was admitted for decision on merit.

2. Addition on Account of Purchases from Suresh HYP Enterprises:
The Assessing Officer (AO) added ?26,57,303 to the assessee's income, citing unserved enquiry letters and suspicious banking transactions. The assessee provided ledger accounts, income tax returns, and bank statements of the supplier. The Tribunal noted that the assessee had been purchasing from this supplier regularly, with past assessments accepting these transactions. The Tribunal found that the AO's concerns, such as the introducer of the bank account and cash withdrawals, were not sufficient grounds for disallowance. The Tribunal deleted the addition, emphasizing that the supplier's tax assessment and banking transactions are not the assessee's responsibility.

3. Addition on Account of Purchases from Suresh HUP Enterprises:
Similar to the previous issue, the AO added ?25,38,995, including purchases and labor charges. The Tribunal observed that the facts were identical to those in the second ground and directed the AO to delete the disallowance, reiterating that the assessee had provided sufficient evidence of genuine transactions.

4. Disallowance under Section 14A of the Income Tax Act:
The AO disallowed ?91,847 under Section 14A, despite the assessee not earning any exempt income during the year. The Tribunal referenced the Delhi High Court's decision in Cheminvest Ltd Vs. CIT, which held that no disallowance can be made if no exempt income is claimed. Therefore, the Tribunal directed the AO to delete this disallowance.

5. Adhoc Disallowances of Various Business Expenditures:
The AO made adhoc disallowances of 10% on several business expenditures, including telephone expenses, vehicle running and maintenance, vehicle depreciation, business promotion, conveyance, and on-site expenses. The Tribunal noted that neither the AO nor the CIT(A) pointed out specific instances of personal or non-business expenses. The Tribunal emphasized that disallowances should be based on concrete findings rather than adhoc percentages. Consequently, the Tribunal deleted all the adhoc disallowances, stating that the expenses were incurred wholly and exclusively for business purposes.

Conclusion:
The Tribunal allowed the appeal in part, condoning the delay and deleting the additions and disallowances made by the AO. The decision emphasized the importance of substantial evidence and the inadmissibility of adhoc disallowances without specific findings.

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