2022 (5) TMI 505 - AT - Income Tax

Tribunal upholds Income Tax assessment order, reduces disallowances, directs 1% turnover disallowance.

The tribunal found the assessment order under Section 143(3) of the Income Tax Act, 1961 to be legally sound and upheld the additions made by the ... Disallowance of expenses - Self made vouchers - cash expenditure - In the absence of any invoices/bills/vouchers, complete cash book etc., the genuineness and correctness of expenses could not be verified by the Assessing Officer - assessee is engaged in the transportation business but he could not submit any documentary evidences to substantiate his claim, 3% of the total other expenses - addition reduced to 0.60% of the Net Profit by the learned CIT(A) - HELD THAT:- The assessee could not able to establish as to why there is a drastic loss in the net profit comparing to the earlier assessment years. Further, the gross profit for the Assessment Year 2015-16 shown by the assessee is 13.23% and claimed a loss of (-) Rs. 56,074/- which is also not seems to be a correct proposition since no evidence is produced before us to establish the loss claimed by the assessee. The reason given by the assessee that the loss is due to depreciation on trucks, the same could have been explained before the lower authorities which has not been done by the assessee but the expenses incurred is not proved with proper evidences and mostly done by cash mode. After going through the order of the learned CIT(A), we are not in agreement with the order of the learned CIT(A) in estimating the profit at 0.60% on the net profit when the assessee has not produced any evidences on the claim of expenses. In the above circumstances, we are of the considered opinion that it would serve the interest of justice, if we restrict the disallowance to 1% of the total turnover of Rs. 27,93,02,001/-, i.e. Rs. 27,93,020/-. Thus, the Assessing Officer is directed to restrict the disallowance to 1% of the total turnover of Rs. 27,93,02,001/-, i.e. Rs. 27,93,020/- and pass appropriate order. Issues Involved:1. Legality of the order passed under Section 143(3) of the Income Tax Act, 1961.2. Justification of additions made by the Assessing Officer (AO) for the Assessment Year 2016-17.3. Methodology adopted by the AO in making additions of Rs. 83,79,060/-.4. Validity of disallowances made in the assessment order regarding various business expenses.Issue-wise Detailed Analysis:1. Legality of the order passed under Section 143(3) of the Income Tax Act, 1961:The assessee contended that the order passed by the income tax officer under Section 143(3) of the Income Tax Act, 1961, is 'bad in law' and should be canceled. However, the tribunal did not find any procedural irregularities or legal infirmities in the assessment order that warranted its cancellation.2. Justification of additions made by the Assessing Officer (AO) for the Assessment Year 2016-17:The AO made additions of Rs. 83,79,060/- to the assessee's income due to the lack of proper evidences such as invoices, bills, vouchers, and a complete cash book. The AO noticed that most payments were made in cash, and the genuineness of the expenses could not be verified. The CIT(A) reduced this disallowance to Rs. 17,95,810/- by estimating the net profit at 0.60% of the total turnover. The tribunal further modified this by restricting the disallowance to 1% of the total turnover, i.e., Rs. 27,93,020/-.3. Methodology adopted by the AO in making additions of Rs. 83,79,060/-:The AO disallowed 3% of the total other expenses claimed by the assessee, amounting to Rs. 27,93,02,001/-. This was due to the absence of supporting evidence for the expenses and the fact that most payments were made in cash. The CIT(A) found this disallowance excessive and reduced it to 0.60% of the turnover. However, the tribunal, after considering the facts and the assessee's inability to justify the drastic loss in net profit, concluded that a 1% disallowance of the total turnover was appropriate.4. Validity of disallowances made in the assessment order regarding various business expenses:The assessee argued that the disallowances were made without proper appreciation of the facts and evidence. The CIT(A) acknowledged the difficulty in verifying cash payments and upheld the AO's decision to reject the book results but reduced the disallowance. The tribunal noted that the assessee failed to provide sufficient evidence to substantiate the expenses and found the CIT(A)'s estimation of net profit at 0.60% to be too lenient. The tribunal thus directed the AO to restrict the disallowance to 1% of the total turnover.Conclusion:The tribunal concluded that the disallowance should be restricted to 1% of the total turnover, amounting to Rs. 27,93,020/-, and directed the AO to pass an appropriate order. The appeal filed by the assessee was allowed to this extent. The order was pronounced in the open court on 22nd April 2022 at Ahmedabad.