2012 (1) TMI 298 - AT - Income Tax

Tribunal allows appeal partially, restricts addition for ingenuine credit, confirms disallowance for vehicle and telephone expenses.

Smt. Sajjandevi B. Jain, Surat Versus Income Tax Officer, OSD-1, Range-2, Surat

The Tribunal partly allowed the appeal by restricting the addition on account of alleged ingenuine credit to 12.5% of the bogus purchases, amounting to ... Bogus Purchases - Estimation of Income - AO observed that certain sundry creditors are not genuine. Further, he has drawn an inference that the assessee had made purchase in the open market by paying cash and created bogus bills in the name of the nonexistent parties. AO disallowed the amount. A.R. vehemently argued that the assessee had made genuine purchases and therefore the entire amount cannot be added to his income. HELD THAT:- The AO has also rightly come to a conclusion that the books of accounts of the assessee are not correct and are incomplete in the sense that the same do not reflect the actual state of affairs of the assessee and therefore liable to be rejected u/s 145(3). The AO's action is therefore sustained, and the addition is confirmed. Since the AO himself has not doubted the genuineness of the purchase but only had doubted the bills to be bogus/inflated, following the ratio of the decision of the ITAT, Ahmedabad Bench in the case of VIJAY PROTEINS LTD. VERSUS ASSISTANT COMMISSIONER [1996 (1) TMI 144 - ITAT AHMEDABAD-C], 12.5% of the purchases may be added to the income of the assessee. Ground of Assessee - partly allowed. Unexplained Cash Expenses- AO observed that the assessee had claimed motor car and telephone expenses, but he was not able to produce any documents to establish his claim of expenditure only for the purpose of business - HELD THAT:- Assessee has not submitted any materials to establish the genuineness of the expenditure, therefore, additions are confirmed with regard to motor car expenses, depreciation claimed on vehicles and telephone expenses. Decision against Assessee. Issues Involved:1. Addition of Rs. 12,86,373/- on account of alleged ingenuine credit.2. Disallowance of Rs. 5,118/- being 1/5th of vehicle expenses and depreciation on vehicle.3. Disallowance of Rs. 3,849/- being 1/5th of telephone expenses.Detailed Analysis:1. Addition of Rs. 12,86,373/- on Account of Alleged Ingenuine Credit:The assessee, engaged in the business of trading art silk cloth, filed a return of income for the assessment year 2005-06. The Assessing Officer (AO) conducted a detailed investigation and concluded that the assessee made purchases from the open market in cash and created bogus purchase bills in the names of non-existent parties to introduce unexplained investments. The AO added Rs. 12,86,373/- to the income of the assessee, deeming the sundry creditors as bogus and the liability ceased.The CIT(A) upheld the AO's decision, stating that the assessee's explanation regarding the issuance of blank cheques to agents was an afterthought and not substantiated. The CIT(A) noted discrepancies in the suppliers' details and questioned the need for issuing advance blank cheques if purchases were on credit. The CIT(A) confirmed the addition, rejecting the applicability of the Vijay Proteins Ltd. case cited by the assessee.During the appellate hearing, the assessee argued that the purchases were genuine and recorded in the stock register, and payments were made by cheque. The assessee contended that the AO doubted only the bills, not the purchases, and suggested that only 25% of the purchases be added to the income, referencing similar cases decided by the ITAT, Ahmedabad Bench.The Tribunal found that the AO's investigation rightly concluded certain sundry creditors were not genuine and that the assessee made purchases from the grey market, generating bogus bills with inflated costs. However, it deemed it unjust to add the entire Rs. 12,86,373/- to the income. Following the ratio of the Vijay Proteins Ltd. case, the Tribunal restricted the addition to 12.5% of the bogus purchases, amounting to Rs. 1,60,797/-, instead of the entire Rs. 12,86,373/-.2. Disallowance of Rs. 5,118/- Being 1/5th of Vehicle Expenses and Depreciation on Vehicle:The AO observed that the assessee claimed motor car expenses of Rs. 17,271/- but failed to produce bills and vouchers to substantiate the claim solely for business purposes. The expenses were made in cash, and no logbook was maintained. Consequently, the AO disallowed 1/5th of the motor car expenses and depreciation, totaling Rs. 5,118/-, which was confirmed by the CIT(A).The assessee argued that the motor car was used exclusively for business purposes. However, the Tribunal found no evidence to establish the genuineness of the expenditure and confirmed the additions.3. Disallowance of Rs. 3,849/- Being 1/5th of Telephone Expenses:The AO noted that the assessee incurred Rs. 19,247/- towards telephone expenses but did not maintain a call register. Suspecting personal use, the AO disallowed 1/5th of the expenses, amounting to Rs. 3,849/-, which was upheld by the CIT(A).The assessee contended that the telephone was installed in the office and used for business purposes. Nonetheless, the Tribunal confirmed the addition due to the lack of evidence proving the expenditure was solely for business purposes.Conclusion:The Tribunal partly allowed the appeal, restricting the addition on account of alleged ingenuine credit to 12.5% of the bogus purchases, amounting to Rs. 1,60,797/-. However, it confirmed the disallowances of Rs. 5,118/- for vehicle expenses and depreciation, and Rs. 3,849/- for telephone expenses due to insufficient evidence from the assessee.