1999 (11) TMI 108 - AT - Income Tax

Tribunal Partially Allows Appeal, Adjusts Purchases & Expenses

The Tribunal partially allowed the appeal by deleting additions for alleged excessive purchase prices and bogus purchases, disallowing telephone expenses, ... Addition Issues Involved:1. Additions on account of alleged excessive purchase prices and bogus purchases.2. Disallowance under Section 43B in respect of provident fund contributions.3. Disallowance out of telephone expenses.Detailed Analysis:1. Additions on Account of Alleged Excessive Purchase Prices and Bogus Purchases:The primary issue revolves around additions of Rs. 3,43,177 and Rs. 51,995 made by the AO due to alleged excessive purchase prices, and an enhancement of Rs. 57,98,103 by the CIT(A) on account of alleged non-genuine and bogus purchases. The assessee declared a gross profit of Rs. 76,47,926 on a turnover of Rs. 25.48 crores, resulting in a G.P. rate of 3.007%. The AO doubted the correctness of the accounts, noting that the G.P. percentage was almost the same as the previous year and observed consistent burning loss and melting scrap percentages.The AO scrutinized purchases from three entities and concluded that these were merely paper transactions. The payments received by these entities were withdrawn in cash on the same day, suggesting that the amounts were returned to the assessee. Further inquiries revealed that the goods were allegedly transported using non-existent trucks or inappropriate vehicles, indicating that the purchases were bogus. Consequently, the AO added Rs. 3,43,177 for inflated purchase prices and Rs. 51,995 for estimated inflation of purchase prices from these entities.The CIT(A) concluded that the entire amount of purchases from these entities should be added, not just the inflation difference, enhancing the income by Rs. 57,98,103. The assessee argued that the CIT(A) could not enhance the income based on a change of opinion and without concrete evidence. The Tribunal found that the AO's additions were based on conjectures and not supported by concrete materials, and thus, the additions of Rs. 3,43,177 and Rs. 51,995 were unwarranted.Regarding the enhancement by the CIT(A), the Tribunal noted that the CIT(A) did not independently evaluate the materials but relied on the findings of the AO and the Central Excise authorities. Since the order of the Collector of Central Excise, which was the basis for the AO's and CIT(A)'s findings, was set aside by the CEGAT, the Tribunal set aside the enhancement order and remanded the case to the CIT(A) for fresh consideration.2. Disallowance Under Section 43B in Respect of Provident Fund Contributions:The AO disallowed Rs. 45,964 for provident fund contributions deposited after the due date but within the grace period allowed by the PF department. The CIT(A) upheld the disallowance, stating that the grace period did not extend the due date. However, the Tribunal held that the payments made within the grace period should be treated as within the due date and allowed the deduction of Rs. 45,964.3. Disallowance Out of Telephone Expenses:The AO disallowed Rs. 21,658 out of telephone expenses for telephones installed at the residences of the partners, attributing it to personal use. The CIT(A) confirmed the disallowance as fair and reasonable. The Tribunal upheld the disallowance, agreeing that 1/4th of the expenses for personal use was justified.Conclusion:The Tribunal partly allowed the appeal, deleting the additions of Rs. 3,43,177 and Rs. 51,995, allowing the deduction of Rs. 45,964 for provident fund contributions, but upheld the disallowance of Rs. 21,658 out of telephone expenses. The enhancement of Rs. 57,98,103 was set aside and remanded to the CIT(A) for fresh consideration.