Assessee wins appeal as purchases deemed genuine with proper documentation; 10% ad hoc disallowance rejected

ITAT Kolkata allowed the assessee's appeal regarding bogus purchase disallowance. The tribunal found purchases genuine based on supporting documents including bills, delivery challans, weigh bridge certificates, transportation details, and bank statements. The Maharashtra Sales Tax department's findings were insufficient without providing relevant materials to the assessee. The tribunal noted corresponding sales were accepted as correct by revenue. Additionally, the 10% ad hoc disallowance was rejected as the AO failed to identify specific defects in claimed expenses. The unexplained cash deposits addition was also deleted as the assessee provided ledger accounts and cash flow statements showing re-deposits of withdrawn amounts.

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Issues Involved:
1. Bogus purchases disallowances/additions.
2. Import direct expenses disallowance.
3. Unexplained cash deposits addition.

Issue-wise Detailed Analysis:

1. Bogus Purchases Disallowances/Additions:
The Revenue's appeals for assessment years 2009-10 and 2010-11 sought to reverse the CIT(A)'s action deleting bogus purchases disallowances/additions of Rs. 73,35,068/- and Rs. 46,56,078/- respectively. The Assessing Officer (AO) had disallowed these purchases based on information from the Maharashtra State Sales Tax Department/VAT, which indicated that the payee parties had provided purchase entries to the taxpayer. The AO concluded that the assessee failed to prove the genuineness of these purchases. However, the CIT(A) reversed the AO's decision, noting that the assessee provided substantial documentary evidence, including purchase bills, delivery challans, weighment certificates, bank statements, and transport vouchers, to support the genuineness of the purchases. The CIT(A) also referenced similar cases where the ITAT had accepted such purchases as genuine. The tribunal found no merit in the Revenue's arguments, noting that the assessee's corresponding sales were accepted as correct, and upheld the CIT(A)'s decision to delete the bogus purchase disallowances.

2. Import Direct Expenses Disallowance:
The Revenue's appeal also sought to revive the import direct expenses disallowance of Rs. 13,36,322/-. The AO had disallowed 10% of the expenses on an estimated basis, alleging them to be bogus due to a significant increase compared to the preceding year. The CIT(A) found that the AO's disallowance was based on a biased approach and an erroneous observation of disproportionate increase due to regrouping and different presentation of expenses. The CIT(A) noted that all expenses were supported by bills, vouchers, and cheque payments, and there was no specific defect pointed out by the AO. The tribunal agreed with the CIT(A), concluding that the disallowance based on mere comparison of figures without specific defects was not sustainable and upheld the deletion of the disallowance.

3. Unexplained Cash Deposits Addition:
The Revenue's appeal also included an issue of unexplained cash deposits amounting to Rs. 13.10 lac. The CIT(A) found that the assessee had provided a ledger account and cash flow statement indicating the re-deposit of cash sums already withdrawn. The AO's remand report did not dispute this evidence. The tribunal found no reason to overturn the CIT(A)'s findings, noting that the assessee had submitted detailed evidence during the remand proceedings, which was not disputed by the AO. The tribunal affirmed the CIT(A)'s decision to delete the unexplained cash deposits addition.

Conclusion:
The tribunal dismissed both of the Revenue's appeals, affirming the CIT(A)'s findings on all three issues. The order was pronounced in open court on 23/04/2019.

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