2020 (2) TMI 943 - AT - Income Tax

Bogus purchases - disallowance of labour and wages expenses - most of the bills voucher were missing and some were self generated - HELD THAT - In the instant case, the ld.CIT(A) has deleted the addition basically on the ground that no specific instance of missing bills or self-made vouchers was mentioned by the AO and going by the general principles, he deleted the addition, therefore, the same, in our opinion, is not proper. For claiming any expenditure as allowable business expenditure, the onus is always on the assessee to substantiate with evidence to the satisfaction of the AO regarding the genuineness of such expenditure incurred wholly and exclusively for the business. Since the assessee, in the instant case, has failed to discharge the onus cast on it before the AO and the ld.CIT(A) has deleted the addition merely on the basis of the statements made by the assessee without giving any opportunity to the AO for his comments, therefore, we deem it proper to restore the issue to the file of the CIT(A) with a direction to grant an opportunity to the AO to go through the various details filed by the assessee and offer his comments and the CIT(A) shall decide the issue thereafter as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds No.1 and 2 are accordingly allowed for statistical purposes. Addition on account of interest on TDS - HELD THAT - Following the decision of the Hon ble Karnataka High Court in the case of CIT vs. Oriental Insurance Company Ltd. 2008 (10) TMI 230 - KARNATAKA HIGH COURT deleted the addition. The ld. DR could not controvert with any evidence so as to take a contrary view than the view taken by the ld.CIT(A). Since the ld.CIT(A) has deleted the addition basing on the decision of the Hon ble Karnataka High Court, therefore, we do not find any infirmity in the order of the CIT(A) on this issue. Undisclosed gross receipt - HELD THAT - CIT(A), while reducing the addition from ₹ 44,21,688/- to ₹ 4,94,250/-, has verified each and every entry and has given a factual finding which could not be controverted by the ld. DR. Since the order of the CIT(A) is based on factual aspect which remains uncontroverted by the Revenue, therefore, we find no infirmity in the order of the CIT(A) reducing the addition - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition towards unverifiable purchases.
2. Deletion of addition towards labor and wages expenses.
3. Deletion of addition towards payment of interest on TDS.
4. Reduction of addition towards undisclosed gross receipts.

Issue-wise Detailed Analysis:

1. Deletion of Addition towards Unverifiable Purchases:
The Assessing Officer (AO) made a disallowance of ?1,02,99,973/- on the grounds that most bills and vouchers were missing or self-generated. However, the CIT(A) deleted the addition, noting that no specific instances of missing bills or self-made vouchers were cited by the AO. The CIT(A) observed that the appellant produced all necessary documents during the appellate proceedings and highlighted a decrease in the purchase ratio and an increase in the gross profit ratio. The Tribunal found that the CIT(A) did not provide the AO an opportunity to comment on the new evidence, which is a requirement under Rule 46A(3). Therefore, the Tribunal restored the issue to the CIT(A) to allow the AO to review the evidence and offer comments before making a final decision.

2. Deletion of Addition towards Labor and Wages Expenses:
The AO added ?77,79,975/- due to the appellant's failure to produce detailed records of labor and wages expenses. The CIT(A) deleted this addition, noting that the appellant provided the required documents during the appellate proceedings and that the labor and wages payment ratio was consistent with previous years. The Tribunal, however, noted that the CIT(A) did not allow the AO to comment on the new evidence. Following the principles established in relevant case law, the Tribunal restored the issue to the CIT(A) to allow the AO to review and comment on the evidence before making a final decision.

3. Deletion of Addition towards Payment of Interest on TDS:
The AO added ?1,889/- on account of interest on TDS. The CIT(A) deleted this addition, referencing the decision of the Hon’ble Karnataka High Court in CIT vs. Oriental Insurance Company Ltd., which supports the appellant's position. The Tribunal found no evidence to contradict the CIT(A)’s decision and upheld the deletion of this addition.

4. Reduction of Addition towards Undisclosed Gross Receipts:
The AO added ?44,21,688/- for undisclosed gross receipts based on discrepancies between the appellant's Profit & Loss Account and Form 26AS. The CIT(A) reduced this addition to ?4,94,250/-, providing a detailed reconciliation of the discrepancies and verifying the appellant's claims. The Tribunal reviewed the CIT(A)’s detailed analysis and found it factually accurate and uncontroverted by the Revenue. Consequently, the Tribunal upheld the CIT(A)’s decision to reduce the addition.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, specifically restoring the issues of unverifiable purchases and labor and wages expenses to the CIT(A) for further examination, while upholding the CIT(A)’s decisions on the deletion of interest on TDS and the reduction of undisclosed gross receipts. The order was pronounced in the open court on 19.02.2020.