2019 (2) TMI 358 - AT - Income Tax

Tribunal allows assessee's appeals for AY 2009-10 and 2010-11, emphasizing evidence for expense claims.

Shri Shantilal B. Parekh Versus ITO-3 (4), Kalyan (W)

Shri Shantilal B. Parekh Versus ITO-3 (4), Kalyan (W) - [2019] 70 ITR (Trib) 193 (ITAT [Mum]) Issues Involved:1. Disallowance of purchases as 'hawala purchases.'2. Sustaining disallowance of unverifiable expenses.3. Rejection of books of account and addition of 20% of expenses.Issue-wise Detailed Analysis:1. Disallowance of Purchases as 'Hawala Purchases':The assessee, a reseller of engineering goods, was implicated in a racket involving bogus invoices issued by hawala dealers. The Sales Tax Department, Mumbai, had identified these dealers who admitted to issuing fake invoices without actual supply of goods. The AO reopened the assessment and added Rs. 2,00,678 to the assessee's income as bogus purchases. The assessee argued that all purchases were genuine, paid through cheques, and duly accounted for in the books. However, the assessee failed to produce the suppliers for verification or provide confirmation letters. The CIT(A) upheld the AO's addition, citing the lack of evidence to prove the genuineness of the purchases and the failure to produce the parties for verification. The Tribunal concluded that 12.5% of the alleged bogus purchases should be added to the assessee's income as an honest estimation of embedded profits, in line with the Supreme Court's decision in Kachwala Gems v. JCIT.2. Sustaining Disallowance of Unverifiable Expenses:The AO disallowed 20% of the total expenses due to the assessee's failure to provide documentary evidence during the assessment proceedings. The CIT(A) called for a remand report, and the AO identified Rs. 1,33,253 for AY 2009-10 and Rs. 1,11,420 for AY 2010-11 as expenses incurred in cash without supporting bills. The CIT(A) upheld these disallowances. The Tribunal reviewed the nature of these expenses and found that while the donation and rent expenses lacked sufficient evidence, the remaining expenses (printing and stationery, tea and refreshment, mobile charges, labour charges, travelling charges, and sundry expenses) were minor and supported by self-made vouchers. The Tribunal allowed these minor expenses, considering their small proportion relative to the total expenses.3. Rejection of Books of Account and Addition of 20% of Expenses:The AO rejected the assessee's books of account under Section 145(3) and made a further addition of Rs. 65,18,663 by disallowing 20% of the expenses. The CIT(A) reduced this disallowance to Rs. 1,33,253 for AY 2009-10 and Rs. 1,11,420 for AY 2010-11, based on the AO's remand report. The Tribunal upheld the disallowance of the donation and rent expenses due to lack of evidence but allowed the remaining minor expenses, noting that they were routine business expenses supported by self-made vouchers.Conclusion:The Tribunal partly allowed the assessee's appeals for both AY 2009-10 and 2010-11. It confirmed the addition of 12.5% of the alleged bogus purchases and upheld the disallowance of donation and rent expenses. However, it allowed the remaining minor expenses, considering their small proportion and the nature of the business. The Tribunal's decision emphasized the importance of fair and honest estimation of income and the need for sufficient evidence to support expense claims.