Tax Appeals Dismissed and Partly Allowed in July 2017

The tribunal dismissed ITA No.1282/Mum/2017 and ITA No.1284/Mum/2017, while ITA No.1283/Mum/2017 was partly allowed. The order was pronounced on the 3rd day of July, 2017.

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Issues Involved:
1. Validity of notice issued under section 151.
2. Addition on alleged bogus purchases.
3. Addition of depreciation on additional fixed assets purchased during the year.
4. Addition of remuneration paid to directors.

Issue-wise Detailed Analysis:

1. Validity of notice issued under section 151:
The assessee contended that the notice issued under section 151 was not sanctioned by the proper authority. However, the learned Counsel for the assessee did not elaborate or make any cogent submission on this issue. Consequently, this ground was dismissed by the tribunal.

2. Addition on alleged bogus purchases:
The Assessing Officer (A.O.) received information from the DGlT(lnv.) Mumbai through the office of CIT-5, Mumbai, indicating that the assessee had taken accommodation entries from certain hawala entities. The investigation by the Sales Tax Department revealed that these entities had not sold any goods but issued invoices for a commission. The assessee failed to provide necessary details to establish the genuineness of the transactions. Consequently, the A.O. estimated the profit at 35% on the bogus purchases. Upon appeal, the learned CIT(A) referred to the decision of the Hon’ble Gujarat High Court in the case of Simit P. Seth and reduced the estimation to 12.5%. The tribunal upheld this decision, finding it reasonable and supported by evidence.

3. Addition of depreciation on additional fixed assets purchased during the year:
The A.O. disallowed the depreciation claimed on new assets due to the assessee's failure to provide details such as bills, delivery challans, and payment schedules. The learned CIT(A) confirmed the disallowance, noting discrepancies in the depreciation schedules submitted by the assessee. The tribunal upheld the disallowance, stating that no evidence was provided for the purchase of fixed assets, and hence, no allowance could be granted on an ad-hoc basis.

4. Addition of remuneration paid to directors:
The A.O. disallowed the excess remuneration paid to directors, citing a lack of justification for the significant increase within a year. The learned CIT(A) confirmed the disallowance, arguing that the increase in turnover was not solely due to the directors' efforts and that the increase in remuneration was not justified by the slight increase in gross profit. However, the tribunal found that the Revenue authorities were unjustly interfering in the business decisions of the assessee. It held that the remuneration was not bogus and set aside the orders of the authorities below, deciding the issue in favor of the assessee.

Conclusion:
The tribunal dismissed ITA No.1282/Mum/2017 and ITA No.1284/Mum/2017, while ITA No.1283/Mum/2017 was partly allowed. The order was pronounced on the 3rd day of July, 2017.

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