2019 (10) TMI 1116 - AT - Income Tax

ITAT Ahmedabad: Partial win on expenses appeal for diesel and oil purchases, disallowance restricted, JP Stone Crusher purchases allowed

The ITAT Ahmedabad partially allowed the appeal regarding the disallowance of expenses for diesel and oil purchases from Ashapura Petroleum and purchases ... Disallowance in respect of purchase of diesel and oil in the absence of supporting evidence - HELD THAT:- AR for the assessee justified that it has incurred the diesel and oil expenses on its plant and machinery used by it. The learned AR for the assessee also admitted the fact that the assessee has not maintained the separate ledger for the diesel and oil expenses incurred for in-house consumption and supplied to the subcontractors. Considering the facts as stated above, the in-house consumption of diesel and oil cannot be neglected. But the fact that the assessee has not maintained separate ledgers for the in-house consumption of the diesel and oil viz a viz supplied to the subcontractors cannot be ignored. Therefore in the interest of justice and fair play, we are inclined to restrict the disallowance being 50% of the expenses under the head diesel and oil as discussed above. Hence the ground of appeal of the assessee is partly allowed. Bogus purchases - assessee before the learned CIT (A) filed the additional evidence under rule 46A of Income Tax Rule - Difference between the amount of purchases shown by the assessee viz a viz the amount of sales shown by the party to the assessee in its books of accounts - HELD THAT:- Even the amount of rupees 2,01,054.00 is treated as an advance to JPSCPL; the assessee is entitled to write it off in the books of accounts if it becomes irrecoverable as it is arising in the course of the business. As the assessee has not shown the amount as an advance in its books of accounts, therefore it can be inferred that it has been written off by the assessee in the year under consideration. Disallowance cannot be made for the expenses claimed by the assessee merely on the ground that the other party has shown liability in its books of accounts. The treatment of the accounting entries in the books of 3rd parties cannot be decisive for the claim of the assessee. It is settled law that the expenses/advances written off in the course of the business are eligible for deduction either under section 28(i) or 37(1) of the Act - assessee is eligible for the deduction for ₹2,01,054.00 on account of the money paid to JPSCPL in the course of the business. Hence we disagree with the view taken by the learned CIT-A. Accordingly, we reverse the same and direct the AO to delete the addition made by him Issues Involved:1. Disallowance of expenses for purchase of diesel and oil from Ashapura Petroleum.2. Disallowance of purchases made from JP Stone Crusher Pvt. Ltd.Issue 1: Disallowance of expenses for purchase of diesel and oil from Ashapura Petroleum:The appellant contested the disallowance of Rs. 5,47,863 for diesel and oil purchases from Ashapura Petroleum. The AO treated the expenses as bogus due to lack of supporting evidence. The appellant submitted additional evidence, including account confirmation, bills, and contra confirmation. The AO noted issues with bills, lack of original bills, and overwriting. The appellant explained the expenses were for the 'LAKHTAR project' and were directly related to construction activities. The AO accepted confirmation from Ashapura Petroleum during remand proceedings. The CIT (A) upheld the disallowance, citing lack of evidence to refute AO's concerns. The ITAT noted the project nature, payment method, and subsequent year's purchases. They allowed relief but restricted disallowance to Rs. 1,13,371 due to incomplete documentation and in-house consumption.Issue 2: Disallowance of purchases made from JP Stone Crusher Pvt. Ltd.:The appellant challenged the disallowance of Rs. 2,01,054 out of total purchases of Rs. 22,60,400 from JP Stone Crusher Pvt. Ltd. The AO treated the expenses as bogus, as there was no response to the notice under section 133(6). The CIT (A) reduced the disallowance based on a remand report showing corresponding sales by JP Stone Crusher Pvt. Ltd. The ITAT noted undisputed facts: payment through cheque, liability shown by JP Stone Crusher Pvt. Ltd., and business course transactions. They held that the amount was eligible for deduction under business expenses, disagreeing with the CIT (A) and directing the AO to delete the addition. The ITAT allowed the appeal partially.In conclusion, the ITAT Ahmedabad partially allowed the appeal, providing detailed analysis and reasoning for each issue raised by the assessee.