2018 (7) TMI 875 - AT - Income Tax

Tribunal Decision: Revenue's Appeal Partly Allowed

The Tribunal partly allowed the revenue's appeal, upholding the addition on account of bogus purchases, partially confirming the disallowance of sales ... Estimation of 8% on account of alleged bogus purchases - Held that:- We find the same to be quite just and reasonable in the circumstances of the case since the assessee was engaged in construction activities and could not carry out the same without actual consumption of material. Therefore, we find no infirmity in the stand of lower authority in this regard. Moreover, the issue has already been dealt with by this Tribunal in assessee’s appeal wherein the estimation has been found to be reasonable. Ground Numbers 1 & 2 stands dismissed. Disallowance on account of Sales promotion Expenses - Held that:- Assessee has miserably failed to substantiate the expenditure with supporting vouchers / documents and all the expenditure was in cash. The complete onus, in this regard, was on assessee which he has failed to discharge. Therefore, the addition to the extent of 20% of expenditure in question i.e. ₹ 5,98,650/- stand confirmed by us. The same works out to ₹ 1,19,730/-. Addition on account of valuation of closing stock - Held that:- Revenue is unable to controvert the fact that the assessee was consistently following the same method of accounting for valuing the closing stock. Further the difference in the valuation is arising only on account of the fact that Ld. AO has considered Total Saleable Area as against Total Constructed Area taken by assessee while arriving at the valuation. We are of the opinion that the cost is incurred vis-à-vis Total Constructed Area out of which Saleable Area may be less in view of the fact that some land is occupied / given free of cost by the assessee. One more aspect is the fact that any change in valuation of the closing stock would be tax neutral in nature in the sense that the same would impact the opening stock of the subsequent year and would go on reduce the profits of the subsequent year. Issues:- Addition of unexplained expenditure on account of bogus purchases- Disallowance of sales promotion expenses- Valuation of closing stockAnalysis:1. Addition of unexplained expenditure on account of bogus purchases:The appeal by the revenue contested the order of the Ld. CIT(A) restricting the addition of unexplained expenditure of Rs. 3,20,060 on account of bogus purchases. The AO had made an addition of Rs. 40,00,753, as the assessee failed to provide evidence of actual delivery of goods purchased. The notices issued to the party from whom alleged bills were received were returned undelivered. The Tribunal found the estimation of 8% reasonable, considering the nature of the assessee's construction activities and upheld the lower authority's decision. The Tribunal dismissed Ground Numbers 1 & 2.2. Disallowance of sales promotion expenses:The AO disallowed sales promotion expenses of Rs. 5,98,650 as the assessee failed to submit supporting documents for the claim. The Ld. CIT(A) deleted this disallowance, but the Tribunal found the assessee had failed to substantiate the expenditure with vouchers and documents. The Tribunal confirmed the addition to the extent of 20% of the expenditure, amounting to Rs. 1,19,730. Ground Number 4 was partly allowed.3. Valuation of closing stock:The addition against closing stock was made due to differences in valuation methods used by the assessee and the AO. The Ld. CIT(A) deleted the addition, stating that the method adopted by the appellant was correct and consistent. The Tribunal concurred with the CIT(A)'s decision, noting that any change in valuation would be tax-neutral and impact subsequent years' profits. The Tribunal dismissed the revenue's appeal on this issue.In conclusion, the Tribunal partly allowed the revenue's appeal, upholding the addition on account of bogus purchases, partially confirming the disallowance of sales promotion expenses, and dismissing the appeal on the valuation of closing stock.