2016 (12) TMI 1708 - AT - Income Tax

ITAT Decision: Appeal partly allowed, focus on evidence & authenticity. Trading addition reduced.

The DCIT, Circle-2, Jaipur cuke Versus M/s Gem Paradise Visa Versa

The ITAT partly allowed the appeal, directing the AO to re-examine certain issues based on additional evidence and pending judgments. The decision ... Trading addition - disallowing 25% of total bogus purchases - Held that:- When the department has accepted the sales made by M/s Clarity Gold Pvt. Ltd which is assessed to tax, how the purchases made by the assessee from the same party can be held to be unverifiable/non-genuine more particularly when the party has given the confirmation for the transaction. We accordingly agree with the contention of the assessee and the AO is directed to allow the said claim after verifying the assessment records of M/s Clarity Gold Pvt Ltd. Issues raised in this appeal in respect of unverifiable purchases from the remaining three parties (other than M/s Clarity Gold) and restore the matter to the file of AO to decide the same afresh after the judgement of Hon’ble Rajasthan High Court in the case of Anuj Kumar Varshney and other vs. ITO (2015 (4) TMI 533 - ITAT JAIPUR) is delivered, after giving adequate opportunity of being heard to the assessee. Disallowance of foreign travel expenses - Held that:- The assessee has provided the necessary explanation in respect of travel of tourist guide Vikas Kaul and Neeta Dadda who is a partner in the firm. Further, it is noted that on similar facts, the disallowance was deleted by ld CIT(A) for AY 200809 against which the department has not filed any appeal. Keeping in mind the nature of the business of the assessee and the explanation provided by the assessee, we see not reason to interfere with the order of ld CIT(A) who has deleted the disallowance of ₹ 1 lacs towards foreign travel expenses. Disallowance on payment to BOB and ICICI by applying the provisions of section 40(a)(ia) since the assessee has not deducted the TDS u/s 194H - Held that:- Addition deleted as relying on assessee’s own case for A.Y. 2008-09 [2012 (2) TMI 521 - ITAT JAIPUR] Issues Involved:1. Trading addition made by AO by disallowing 25% of total bogus purchases.2. Deletion of addition made by AO out of sales commission paid.3. Deletion of disallowance of foreign traveling expenses.4. Deletion of addition made by AO u/s 40(a)(ia) on account of non-deduction of TDS on credit card commission.5. Confirmation of trading addition by applying G.P. rate of 25.5%.6. Confirmation of disallowance out of the commission paid to four parties.Detailed Analysis:1. Trading Addition on Bogus Purchases:The AO disallowed 25% of purchases amounting to Rs. 1,01,00,729/- from four parties, deeming them unverifiable and bogus. The CIT(A) restricted the trading addition to Rs. 6,63,915/- by applying a G.P. rate of 25.50%. The assessee argued that the purchases were verifiable and supported by documentation. The ITAT found merit in the assessee's argument, especially regarding purchases from M/s Clarity Gold Pvt. Ltd., which had confirmed the transactions. The ITAT directed the AO to verify the assessment records of M/s Clarity Gold Pvt. Ltd. and allowed the claim. For the remaining three parties, the matter was remanded to the AO to decide afresh after the Rajasthan High Court's judgment in a related case.2. Deletion of Addition on Sales Commission:The AO disallowed 30% of the commission paid to 21 parties, totaling Rs. 10,99,968/-. The CIT(A) reduced this disallowance to 20% of the commission paid to the four non-compliant parties. The ITAT upheld the deletion of additions for the 17 compliant parties, noting that the commission was reported in their tax returns. For the four non-compliant parties, the ITAT accepted additional evidence and remanded the matter to the AO for fresh examination.3. Deletion of Disallowance of Foreign Traveling Expenses:The AO disallowed Rs. 1,00,000/- of foreign traveling expenses, questioning the business purpose. The CIT(A) deleted this disallowance, referencing a similar deletion in the previous year. The ITAT upheld the CIT(A)'s decision, noting the business nature of the expenses and the lack of new arguments from the AO.4. Deletion of Addition u/s 40(a)(ia) for Non-deduction of TDS:The AO disallowed payments to BOB and ICICI amounting to Rs. 7,26,312/- for non-deduction of TDS under section 194H. The CIT(A) deleted this disallowance, relying on a previous ITAT order in the assessee's case. The ITAT upheld the CIT(A)'s decision, following the precedent set in the earlier order.5. Confirmation of Trading Addition by Applying G.P. Rate of 25.5%:The CIT(A) applied a G.P. rate of 25.5% on the declared turnover, resulting in a trading addition of Rs. 6,63,915/-. The assessee argued that the immediate past year's G.P. rate of 25.19% should be considered. The ITAT found the CIT(A)'s application of a 25.5% G.P. rate unjustified and directed the AO to consider the past history and immediate preceding year's G.P. rate.6. Confirmation of Disallowance out of Commission Paid to Four Parties:The CIT(A) confirmed the disallowance of Rs. 1,44,276/- out of the commission paid to four parties. The ITAT accepted additional evidence from the assessee and remanded the matter to the AO for fresh examination, considering the new evidence.Conclusion:The ITAT partly allowed the appeal and cross-objection for statistical purposes, directing the AO to re-examine certain issues based on additional evidence and pending judgments. The decision emphasized the importance of past history and proper verification of records in determining the genuineness of transactions.