2018 (1) TMI 659 - AT - Income Tax

Disallowance of the power and fuel expenses - Held that - Despite there being Sales Tax Number available in the bills supplied by the parties to the assessee the Ld. assessing officer should have referred if he has any doubt to the sales tax authorities about the veracity of the purchases made by the assessee. The assessing officer has not done so. The assessing officer has also not passed the information to the assessing officer of those parties to verify the purchases. In view of this facts merely on the basis of conjectures and surmises the Ld. assessing officer has made a disallowance of power and fuel expenses. Even otherwise if the Ld. assessing officer is of the opinion that the purchases are bogus, he should have disallowed the amount of purchases of that particular party and not an ad hoc disallowance should have been made. CIT (A) has confirmed the disallowance only for the reason that assessee has not produced further details but he has not given any reason or any clue about what further details assessee should have furnished before the assessing officer. In the result we do not find any reason to confirm the orders of the lower authorities. Therefore we reverse the finding of the lower authorities and the direct the Ld. assessing officer to delete the disallowance of ₹ 25 Lacs out of the power and fuel expenditure. In the result ground No. 1 of the appeal of the assessee is allowed. Addition on account of meeting and conference expenses - Held that - The assessee has incurred these expenditure for the purpose of business of the assessee and also given a detailed reason thereof. Furthermore, the assessee has submitted the requisite detail before the AO. The AO has not stated that what details have not been submitted and if the details have not been submitted by the assessee then expenditure should have been disallowed to that extent. The Ld. assessing officer has made the ad hoc disallowance, without pointing out any instances of the expenditure for which the information is not made available by the assessee. Therefore the disallowance made by the Ld. assessing officer and confirmed by the Ld. CIT (A) cannot be sustained. In the result ground No. 2 of the appeal of the assessee is allowed. Disallowance u/s 40 A(3) - Held that - In the present case the assessee has made the payment in excess of the amount specified and could not also justify the claim of the assessee that such payment falls under the exception covered under rule DD of the Income Tax Rules, 1962. In view of this, we do not find any infirmity in the order of the Ld. assessing officer in making the above disallowance of ₹ 48650/ . In the result ground No. 3 of the appeal of the assessee is dismissed. Penalty u/s 271(1)(c) - Held that - In the assessment order the ld Assessing Officer vide recording the satisfaction has stated that assessee has concealed or furnished inaccurate particulars of its income. In the penalty order in para No. 5 the ld Assessing Officer has noted that assessee has furnished inaccurate particulars resulting in concealment of income. The ld CIT(A) has deleted the penalty following the decision of the Hon ble Supreme Court in case of CIT Vs. Reliance Petro Products Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of ?25,00,000 on account of unverified purchases.
2. Sustaining the adhoc disallowance of ?4,00,000 on account of meeting and conference expenses.
3. Sustaining the disallowance of ?48,650 under section 40A(3) of the Income Tax Act.
4. Deleting the penalty u/s 271(1)(c) amounting to ?11,72,400.

Issue-wise Detailed Analysis:

1. Addition of ?25,00,000 on Account of Unverified Purchases:
The assessee challenged the addition of ?25,00,000 sustained by the CIT(A) from the total purchases of ?48,65,671 from three suppliers. The assessee argued that the purchases were duly recorded in the company’s books, entered into the state on UP Sales Tax Road Permit, consumed in production, and accepted by UP Sales Tax Authorities. The Tribunal noted that the Assessing Officer made an ad hoc disallowance without verifying the sales tax numbers or referring the matter to the sales tax authorities. The Tribunal found no basis for the disallowance and directed the deletion of ?25,00,000 out of power and fuel expenditure. Thus, ground No. 1 of the assessee's appeal was allowed.

2. Adhoc Disallowance of ?4,00,000 on Account of Meeting and Conference Expenses:
The assessee contested the disallowance of ?1,00,000 on account of meeting and conference expenses, arguing that the expenses were just 0.16% of the total expenses, consistent with the previous year. The Tribunal observed that the Assessing Officer made an ad hoc disallowance without specifying which details were missing or which expenses were not substantiated. The Tribunal found the disallowance unsustainable and allowed ground No. 2 of the assessee's appeal.

3. Disallowance of ?48,650 under Section 40A(3):
The assessee contested the disallowance of ?48,650 under section 40A(3) for making cash payments in violation of the Income Tax Rules. The Tribunal upheld the disallowance, noting that the assessee could not justify that the payments fell under any exceptions covered under rule 6DD of the Income Tax Rules, 1962. Thus, ground No. 3 of the assessee's appeal was dismissed.

4. Deleting Penalty u/s 271(1)(c) Amounting to ?11,72,400:
The revenue appealed against the CIT(A)'s order deleting the penalty u/s 271(1)(c). The Tribunal noted that since the additions of ?25,00,000 for power and fuel expenses and ?1,00,000 for meeting expenses were deleted, the penalty to that extent did not survive. The only sustained addition was ?48,650 under section 40A(3). The Tribunal found no infirmity in the CIT(A)'s decision to delete the penalty, following the Supreme Court's decision in CIT Vs. Reliance Petro Products Pvt. Ltd. Thus, the revenue's appeal was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, resulting in the deletion of the additions of ?25,00,000 and ?1,00,000. The disallowance of ?48,650 under section 40A(3) was upheld. The revenue's appeal regarding the penalty u/s 271(1)(c) was dismissed.