2016 (1) TMI 645 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on expense disallowance, stresses importance of evidence.

DCIT Versus Norma India Ltd.

DCIT Versus Norma India Ltd. - TMI Issues:- Disallowance of expenses related to tools, consumables, machinery repair, and packing expenses- Verification of purchases made from M/s. R. K. Enterprises and M/s. Vasu Trading CorporationAnalysis:1. Disallowance of Expenses:- The revenue appealed against the deletion of the disallowance of expenses amounting to Rs. 25,70,462 by the CIT(A).- The Assessing Officer (AO) observed a significant rise in expenses related to tools, consumables, machinery repair, and packing expenses by the assessee company.- Upon investigation, it was found that the firms from which the purchases were made, namely M/s. R. K. Enterprises and M/s. Vasu Trading Corporation, were non-traceable and lacked verifiable existence.- The AO disallowed the expenses as the purchases were not related to raw materials for manufacturing, and the entities were deemed fictitious.- Additionally, the AO made an additional income addition of Rs. 5,00,000 due to unreliable books of accounts and suspected undisclosed expenditures.2. Verification of Purchases:- The CIT(A) deleted the disallowance based on evidence submitted by the assessee, including ledger accounts, bills, material lists, bank statements, transporter affidavits, and sales tax details.- The CIT(A) held that the assessee had discharged its onus of proving the genuineness of purchases, especially in the absence of contrary evidence or responses to notices under section 133(6).- The revenue contended that without serving notices to the sellers under section 133(6), the purchases should be treated as bogus, which was reiterated by the Departmental Representative (DR).- The appellant argued that the disallowance was unfounded and that the CIT(A) rightly deleted it based on the evidence provided.3. Judgment and Conclusion:- The Tribunal noted that the disallowance seemed to stem from a tax evasion petition without substantial evidence presented by the petitioner or the AO.- The Tribunal found that the assessee had submitted overwhelming evidence to support the genuineness of the purchases, including various documents and records.- Emphasizing the lack of concrete evidence against the assessee and the substantial evidence provided by the assessee, the Tribunal confirmed the CIT(A)'s decision to delete the disallowance of Rs. 25,70,462.- The Tribunal highlighted the importance of thorough investigation and evidence before making disallowances, especially in cases where the assessee has provided substantial supporting documentation.4. Outcome:- The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of expenses related to tools, consumables, machinery repair, and packing expenses.- The judgment was pronounced in the open court on 08.12.2015 by the members of the tribunal, Shri H.S. Sidhu (Judicial Member) and Shri Prashant Maharishi (Accountant Member).