MUKESH S. JAIN ,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX 24(3), MUMBAI

This is second round of proceedings. In the earlier round, the ITAT has restored all the issues to the file of Ld CIT(A) for examining them afresh. The facts of the case are that the assessee is engaged in the business of manufacturing of garments under the name and style M/s. Mukesh Enterprises. It filed its return of income for the year under consideration

The Assessing Officer also noticed that the assessee has claimed expenses under various heads. Since the said expenses are supported by self made vouchers in some cases, the AO disallowed 20% of the expenses claimed under the head conveyance, travelling and transport charges. The Assessing Officer also disallowed 10% expenses claimed under the head Sales promotion and sundry expenses on similar reasoning. The learned CIT(A) confirmed the additions and hence the assessee filed appeal before the ITAT alongwith certain additional evidences. Hence, as stated earlier, the 3 Mukesh S. Jain ITAT restored the matters back to the file of the learned CIT(A) for examining the issues afresh.

In the set aside proceedings, the learned CIT(A) called for a remand report from the Assessing Officer on the additional evidences filed by the assessee, but the Assessing Officer expressed his inability to verify the additional evidences since the case records have been handed over to a service provider. The learned CIT(A) noticed from the bank statements that the assessee has made payments towards above said purchases to the extent of Rs. 15,47,093/- only during the year under consideration. Since the said payments are lower than the purchases amount of Rs.73.78 lakhs, referred above, the learned CIT(A) took the view that the assessee has failed to prove the payments made towards said purchases. Accordingly, the learned CIT(A) confirmed the addition made out of purchases.

In respect of disallowances made out of various expenses, the learned CIT(A) restricted the addition uniformly to 5% of all the expenses. Aggrieved by the order passed by Ld CIT(A) in the second round, the assessee has filed this appeal before the Tribunal.

We heard the parties and perused the record. We notice that the assessee has furnished copies of purchase bills, ledger accounts of parties, bank statement copies and a statement showing payments made to the above said suppliers during the year under consideration. The Ld A.R submitted that all these documents prove the genuineness of purchases. He further submitted that the tax authorities have not found fault with any of the evidences furnished by the assessee to prove genuineness of purchases. He submitted that the fact that the assessee has not made full payment during the year under consideration, cannot be a ground to disbelieve the genuineness of purchases. He also submitted that non-production of 4 Mukesh S. Jain suppliers also cannot also be a ground for disbelieving purchases, when no fault with the documentary evidences was found.

Learned DR, on the contrary, supported the orders passed by the Assessing Officer/the learned CIT(A).

We heard the parties and perused the record. In our considered view, there is merit in the submissions made by learned AR that non-production of suppliers or non-payment of outstanding balance of creditors during the year under consideration itself, cannot be grounds for disbelieving the purchases made by the assessee. We noticed earlier that the assessee has furnished copies of purchase bills and also details of payments made to them. We noticed that the tax authorities have not found any fault with those documents. It is also not the case of the assessing officer that the assessee, by booking these purchases, has suppressed his profits. Under these set of facts, we are of the view that there is no reason to disbelieve the purchases made by the assessee, i.e., the AO has drawn conclusion only on surmises and conjectures. Accordingly, we are of the view that this addition cannot be sustained. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the entire disallowance made out of purchases.

With regard to the disallowance made out of expenses, we noticed that the Assessing Officer has made estimated disallowance on the reasoning that some expenses are supported by self made vouchers. There should not be any dispute that the self made vouchers are not susceptible for verification. We also further noticed that the Assessing Officer has made disallowance @ 20%/10%. However, the learned CIT(A) has reduced the same and sustained disallowance at an uniform rate of 5% of expenses. In our view, the disallowance made @ 5% out of expenses is reasonable as the same would take care of the revenue leakage, if any, made by claiming such kind of 5 Mukesh S. Jain expenses, which are supported by self made vouchers. Accordingly, we confirm the order passed by the learned CIT(A) on this issue.