2019 (11) TMI 201 - AT - Income Tax

Addition u/s 40(A)(3) - HELD THAT - It is an admitted fact that the suppliers Mohd Nasim Qureshi who had supplied the raw meat in the F.Y. 2009-10 has submitted that I do not now the above farm or related persons of above farm before or after 01.04.2009. Nothing has been brought on record that the assessee has purchased the raw material from the said person. The assessee has merely stated before the AO that the amount was the opening balance and the total payments had been made less than ₹ 20,000/- in a day. Mere statement by the assessee that it has dispute with this person cannot be sufficient to delete the addition. Since the CIT(A) while sustaining the addition has give justifiable reasons, therefore, we uphold the same. The ground raised by the assessee on this issue is accordingly dismissed. Enhancement of income from u/s 40A(3) - CIT(A) has passed a very detailed and elaborate order while enhancing the income of the assessee u/s 40A(3) of the Act. In the absence of any contrary material available before us, we do not find any infirmity in the order of the CIT(A). Accordingly the same is upheld.

Summary

Issues Involved:
1. Sustenance of addition of ?9,91,425/- under Section 40(A)(3).
2. Enhancement of initial addition from ?16,35,549/- to ?1,63,55,491/- under Section 40(A)(3).

Detailed Analysis:

1. Sustenance of Addition of ?9,91,425/- under Section 40(A)(3):

The assessee, a private limited company engaged in processing and trading buffalo meat, filed its return of income declaring nil income after setting off brought forward losses. During the assessment proceedings, the Assessing Officer (AO) noted sundry creditors amounting to ?2,18,28,275/- in the balance sheet. Notices issued under Section 133(6) to suppliers revealed that some suppliers did not maintain accounts or have bank accounts, casting doubt on the genuineness of payments. Specifically, one supplier, Mrs. Mohd. Nasim Qureshi, denied any business transactions with the assessee, leading to an addition of ?9,91,425/- to the assessee's total income.

The Commissioner of Income Tax (Appeals) [CIT(A)] sustained this addition, and the Tribunal upheld this decision. The Tribunal found that the assessee's mere statement of disputes with the supplier was insufficient to delete the addition, and no convincing evidence was provided to prove the transactions. Thus, the addition of ?9,91,425/- was upheld.

2. Enhancement of Initial Addition from ?16,35,549/- to ?1,63,55,491/- under Section 40(A)(3):

The AO initially disallowed ?16,35,549/- under Section 40A(3) due to cash purchases totaling ?1,63,55,491/- made from various suppliers. During the appeal, the CIT(A) issued an enhancement notice and increased the disallowance to the full amount of ?1,63,55,491/-, resulting in an enhancement of ?1,47,19,942/-. The CIT(A) noted that the assessee failed to produce sale bills from suppliers or any supporting documents to verify the payments. The assessee's claim that payments were made in amounts not exceeding ?20,000/- each time was unsupported by documentary evidence and appeared to be an attempt to circumvent Section 40A(3).

The CIT(A) provided detailed reasoning, highlighting the improbability of small suppliers allowing large outstanding payments and accepting small payments over extended periods. The pattern of transactions and lack of supporting documents indicated that the entries in the assessee's books were designed to avoid the implications of Section 40A(3). The Tribunal, finding no contrary material, upheld the CIT(A)'s detailed and elaborate order, confirming the enhancement to ?1,63,55,491/-.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding both the sustenance of the addition of ?9,91,425/- and the enhancement of the addition from ?16,35,549/- to ?1,63,55,491/- under Section 40(A)(3). The decision was pronounced in the open court on 17.10.2019.