2014 (11) TMI 295 - AT - Income Tax

Tribunal Partially Allows Appeal, Directs Deletion of Disallowance, Upholds Others

The Tribunal allowed the appeal in part, directing the deletion of the disallowance of purchases while upholding the disallowances of donation expenses, ... Purchases made disallowed – Genuineness of purchases - Held that:- The genuineness of the purchases is suspected only for the reason that the five parties were not available in the given addresses - the AO himself, during the course of remand proceedings, have obtained the bank statements of the five parties - It is in the common knowledge of everybody that the bank account, now a days, could be opened only on submission of proper documents - the assessee has furnished the Sales tax documents of the five parties and also their income tax details to prove their existence - the assessee has furnished many documents to prove the existence of the parties and they have not been controverted by the AO - the assessee had made the payments to the above said parties by way of account payee cheques - the transactions have been routed through the bank accounts - In the absence of any material, the view taken by the tax authorities that the purchases amount is liable to be disallowed u/s 40A(3) of the Act cannot be accepted – the AO has accepted the fact that the quantity details of purchases and sales have been reconciled by the assessee - CIT(A) was not justified in confirming the disallowance of purchases – Decided in favour of assessee. Donation expenses disallowed – Held that:- CIT(A) has confirmed the disallowance on the reasoning that the payment is not related to the carrying on of the business – the order of the CIT(A) is upheld – Decided against assessee. Disallowance out of telephone expenses – Held that:- Since the assessee could not furnish proper explanations - the assessee did not furnish any convincing explanation or the letter obtained from Shri Mahendra Sanghvi regarding the usage of telephone – the order of the CIT(A) is upheld – Decided against assessee. Disallowance of 20% amount under Hamali and Cartage Charges – Held that:- The expenses incurred entirely on cash payment and further they were not supported by any evidence - no fresh evidence or arguments were advances – thus, the order of the CIT(A) is upheld – Decided against assessee Issues Involved:1. Disallowance of purchases.2. Disallowance of donation expenses.3. Disallowance of telephone expenses.4. Disallowance of hamali and cartage expenses.Issue-wise Detailed Analysis:1. Disallowance of Purchases:The primary issue concerns the disallowance of Rs. 1,74,01,436/- on account of alleged bogus purchases. During the assessment, inquiries under section 133(6) revealed that notices to five suppliers returned undelivered, leading the AO to treat these purchases as non-genuine. The assessee provided ledger copies, purchase bills, and delivery challans, but field inquiries by the Inspector confirmed that the suppliers did not exist at the given addresses. The AO concluded that the assessee obtained accommodation entries and disallowed the purchases, suggesting that if purchases were made from other parties, they were in cash, violating section 40(A)(3) and attracting section 69C for unexplained expenditure.In appellate proceedings, the assessee submitted additional evidence, including TIN allotment letters, sales tax returns, and VAT certificates, prompting a remand report from the AO. The AO reiterated that three suppliers were listed as hawala operators, and bank statements showed immediate cash withdrawals post cheque deposits. Despite the assessee's detailed rebuttal and reliance on various case laws, the CIT(A) upheld the AO's disallowance, agreeing that purchases were likely from the grey market.The Tribunal, however, found that the assessee provided substantial evidence, including bank statements and sales tax documents, proving the existence of the suppliers. The AO's suspicion was based on the suppliers' non-availability at given addresses, not on concrete evidence of bogus purchases. The Tribunal noted that payments were made via account payee cheques, and the AO did not dispute the sales corresponding to these purchases. Consequently, the Tribunal directed the AO to delete the disallowance, as the tax authorities' conclusions were based on assumptions without supporting material.2. Disallowance of Donation Expenses:The assessee claimed Rs. 3,351/- as a donation expense for Ganpati Mandal Pooja. The CIT(A) disallowed this expense, reasoning it was not related to business activities. The Tribunal upheld this view, agreeing that the donation was not connected to the business, thus confirming the disallowance.3. Disallowance of Telephone Expenses:The AO disallowed Rs. 16,472/- of telephone expenses, noting the telephone belonged to a relative, Shri Mahendra Sanghvi, and the assessee failed to prove its business usage. The CIT(A) confirmed this disallowance, as the assessee did not provide satisfactory explanations or evidence. The Tribunal also upheld this decision, given the lack of convincing evidence from the assessee.4. Disallowance of Hamali and Cartage Expenses:The AO disallowed 20% of hamali and cartage expenses due to entirely cash payments and insufficient supporting evidence. Despite the assessee submitting vouchers as additional evidence, the CIT(A) found them deficient and upheld the disallowance. The Tribunal confirmed this decision, as no new evidence or arguments were presented to challenge the CIT(A)'s findings.Conclusion:The appeal was partly allowed. The Tribunal directed the deletion of the disallowance of purchases but upheld the disallowances of donation expenses, telephone expenses, and hamali and cartage expenses. The judgment was pronounced in the open court on 5th November 2014.