2018 (6) TMI 1028 - AT - Income Tax

Appellate Tribunal overrules disallowances under Income-tax Act, stresses need for concrete evidence

The Appellate Tribunal allowed the assessee's appeal, directing the Assessing Officer to delete the disallowances under section 40A(2)(b) for purchases ... Disallowance u/s 40A(2)(b) - purchase of cotton from the sister concern - difference in prices paid as compared to market prices - Held that:- AO rejected assessee's contentions and proceeded to make a lump sum addition of ₹ 2 lakhs on this account. It is also seen that the Assessing Officer has not made the addition in respect of specific bills where he was of the opinion that the prices paid were higher than the prevailing market prices. Thus this disallowance by the Assessing Officer was not backed by any proper examination and was made without considering the contention of the assessee with regard to the difference in the quality of the cotton purchased - Decided in favour of assessee Disallowance of expenses - Held that:- Ad hoc disallowance which has been made without pointing out any specific instances where the vouchers were not found. The addition has been made on the ground of probability of personal use in telephone and vehicle running expenses. However, since no specific instances have been indicated where the assessee was unable to produce the vouchers or submit the details in respect of these expenses, we find that this disallowance also deserves to be deleted. - Decided in favour of assessee Issues:1. Disallowance under section 40A(2)(b) of the Income-tax Act, 1961 for purchases made from sister concern.2. Disallowance of expenses including telephone, motor cycle, travelling, and staff welfare expenses.Analysis:*Issue 1: Disallowance under section 40A(2)(b) for purchases made from sister concern*The Assessing Officer made a lump sum addition of &8377; 20 lakhs under section 40A(2)(b) of the Income-tax Act, 1961, based on the comparison of rates of purchases made from the sister concern with prevailing market rates of cotton. The appellant argued that the goods purchased were agricultural produce with varying grades and standards, unlike standard products like gold and silver, and hence, the prevailing market rate comparison was not appropriate. The Tribunal observed that the Assessing Officer did not consider the quality variation due to factors like moisture content and vegetable produce in the product. As specific bills were not considered for the addition, the Tribunal held that the disallowance lacked proper examination and directed the Assessing Officer to delete the disallowance.*Issue 2: Disallowance of expenses*The disallowance of &8377; 10,000 for telephone, motor cycle, travelling, and staff welfare expenses was made on an ad hoc basis without specific instances of variation pointed out. The Tribunal noted that no specific instances were provided where vouchers were not produced or details were missing for these expenses. As the disallowance was based on the probability of personal use without concrete evidence, the Tribunal concluded that this addition should be deleted. Therefore, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) on this issue and directed the Assessing Officer to delete this addition.In conclusion, the appeal of the assessee was allowed by the Appellate Tribunal, emphasizing the need for a proper examination and concrete evidence before disallowing expenses or making additions under relevant sections of the Income-tax Act.