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Facts
The assessee, engaged in trading agricultural products, filed its return of income. The Assessing Officer (AO) made additions for disallowance of purchases, transport charges, and interest paid to partners. The CIT(A) upheld these additions.
Held
The Tribunal held that the disallowances made by the AO for purchases and transport charges were ad-hoc and not based on specific discrepancies, especially after remand reports indicated verification of purchases. The disallowance of interest paid to partners was also deleted as the actual interest paid was within the permissible limit.
Key Issues
Whether ad-hoc disallowances for purchases and transport charges made without specific evidence are justified, and whether disallowance of interest paid to partners at a rate higher than actually paid is permissible.
Sections Cited
143(3), 133(6), 250(4), 40(b)
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Income Tax Appellate Tribunal, “B” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Present for: Assessee : Shri Rajesh Sanghvi, CA Revenue : Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 30.07.2025 Date of Pronouncement : 30.09.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
1. This appeal filed by assessee is against the order of CIT (A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2023-24/1065957706(1), dated 24.06.2024 passed against the assessment order by Income Tax Officer-17(2)(4), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 02.03.2016 for Assessment Year 2013-14.
Grounds taken by assessee are reproduced as under: 1. In the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding the action of the AO for making adhoc disallowances of purchase of Rs 7,84,37,395/- being 10% of the total purchases, without appreciating the nature Naresh Bros Assessment Year 2013-14 of business, explanations given, evidences, remand report dt: 23-10-17 and ignoring prior/subsequent year assessment orders and the consistent GP ratios.
2. In the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding the action of the AO for making adhoc disallowances of transport charges of Rs. 8,43,683/- being 10% of the total transport, expenses without appreciation the explanation given, evidences filed for the genuineness of the expenditure 3. In the facts and circumstances of the case and in law the Ld. CIT(A) erred in disallowing of the interest expenses for interest paid to the partners of Rs 3,13,104/- without appreciating the facts of the ease and without appreciation the explanation given.
4. In the facts and circumstances of the case and in law the Ld. CIT(A) erred in disallowing the of interest expenses of Rs 2,82,310/-without appreciating the facts of the case and without appreciation the explanation given.
We deal with the grounds raised by the Assessee, seriatim. Brief facts of the case are that assessee filed its return of income on 29.09.2013 reporting total income at Rs 9,14,210/-. Assessee is engaged in the business of trading of cattle feed, poultry feed ingredients, grains and other agricultural products. Assessment was completed by making the following additions: disallowance of purchase expenses by adopting an ad-hoc rate i) of 10% of the total purchases, Rs.7,84,37,395/-. disallowance of transport expenses by adopting an ad-hoc rate ii) of 10% of the total transport expenses, Rs.8,43,683/-. disallowance of interest paid to partners being excess at the iii) rate of 18%, Rs 3,13,104/-. disallowance of interest, Rs 2,82,310/-. iv)
In respect of ground No. 1, for addition made by taking 10% of the total purchases, it is noted from the orders of the authorities below that the addition so made, is in absence of proper documentation and audit report. Ld. Assessing Officer had issued notices u/s.133(6) to all the parties from whom purchases were made. According to him, since 4.1. In the first appellate proceedings, remand reports were called for from the ld. Assessing Officer. There are two remand reports placed in the paper book containing in total 555 pages. Remand report, dated 24.10.2017 is placed at page 8 and 9 and another remand report dated 25.04.2017 is placed at page No. 10 of the paper book. Ld. Counsel before us, submitted that a request was made under the Right to Information Act, 2005, (RTI) for obtaining copies of the entire assessment records so as to demonstrate the submissions made by the assessee in respect of additions made while completing the assessment. Copy of request made under the RTI Act dated 16.10.2024 is also placed in the paper book from page Nos. 11 to 13.
4.2. From these records made available under the RTI Act, assessee demonstrated from the remand report dated 24.10.2017 which is subsequent to the first remand report dated 25.04.2017 whereby ld. Assessing Officer records that notices u/s.133(6) dated 01.09.2017 were issued to all the parties. It is further noted in the remand report that replies to the notices were received and were verified from the purchases made by the assessee which tallied with ledger copy, purchase bills and bank statement from the different parties. It was further noted that all the replies received are placed on record.
4.3. This factual position given by the ld. Assessing Officer through remand report to the ld. CIT(A) has not been considered while dealing with the issue raised by the assessee in ground No.
Copy of the remand report given by the ld. Assessing Officer is extracted below along with the covering given by the range officer addressed to ld. CIT(A). Both 4.4. In the first remand report dated 25.04.2017, ld. Assessing Officer has dealt with the contention of the assessee that all the 10 parties to whom notices u/s.133(6) were issued during the course of assessment proceedings are 100% same parties for purchases of AY 2012-13, 2013- 14 and 2014-15, which was stated to be not correct.
4.5. Accordingly, considering the most clinching evidence on record by way of remand report from the ld. Assessing Officer dated 23.10.2017, along with covering letter by the Range Officer, dated 24.10.2017, the addition made by the ld. Assessing Officer by adopting an ad hoc rate of 10% to disallow the purchases is deleted. The addition made is thus deleted and ground No.1 raised by the assessee is allowed.
In respect of ground No. 2, whereby transport charges totalling to Rs.84,36,838/- has been subjected to a disallowance by adopting an ad hoc rate of 10% and thus, a disallowance of Rs.8,43,683/- has been made. In this respect, assessee submitted that details of transport charges, truck-wise and date-wise were furnished in the course of assessment which forms part of the paper book from page Nos. 482 to 488. Details of truck numbers are mentioned in the relevant purchase and sales bill. Sample copies of these bills are placed on record to demonstrate this fact.
5.1. According to the assessee, transport charges are mostly paid by vendor or the customers. Assessee obtained PAN details for all the payments which were made in excess of Rs. 30,000/- and hence, there is no liability to deduct tax at source no the said payments.
Naresh Bros Assessment Year 2013-14 5.2. We have perused the records forming part of the paper book and note that assessee has furnished all the required details truck-wise and date-wise for the transport charges and has obtained PAN details for all the charges paid in excess of Rs. 30,000/- and thus, assessee complied with the TDS provisions and therefore, cannot be held liable to be not complying with the TDS provisions on the payment of such charges. In the given set of facts, corroborated by documentary evidences, we delete the addition made by ld. Assessing Officer, who has adopted an ad hoc rate of 10% for the purpose of making the disallowance without pinpointing any discrepancy in the records and details furnished by the assessee. Ground no. 2 raised by the assessee is allowed.
Ground No. 3 is in respect of disallowance of interest paid to partners u/s. 40(b) which is in excess of 12%. In this respect, assessee has in fact paid interest at the rate of 12% only on the opening capital balance of partners. However, the rate of interest mentioned in the partnership deed is at the rate of 18%. The books of accounts and audit report were furnished in the course of assessment proceedings which demonstrates that assessee has in fact paid interest at the rate of 12% on the opening capital balance. For this, a reference was made to schedule of partner’s capital forming part of the balance sheet as on 31.03.2013, placed at page 56 of the paper book. The total of opening balance of partner’s capital is stated at Rs.78,11,654/-. There are no additions made during the year. Interest totals up to Rs.9,39,309/- which comes to 12% of the opening balance of capital. Thus, assessee demonstrated factually that it has claimed deduction of interest paid to partners for a sum of Rs.9,39,309/- which is at the rate of 12% on the opening balance of capital and therefore, no disallowance is called for since compliance has been made with the requirements of section 40(b). It is correct that the rate of interest mentioned in the partnership is Naresh Bros Assessment Year 2013-14 18%, however, the interest actually paid is at the rate of 12% only. Ld. Assessing Officer has presumed the interest payment at the rate of 18% and has therefore made a back calculation to make an addition by taking 6% for the purpose of computing disallowance of Rs.3,13,104/-.
6.1. We have perused the records and taken note of the factual position which remains uncontroverted. Actual expenditure claimed by the assessee towards interest paid to partners is at the rate of 12% though the rate of 18% is mentioned in the partnership deed. We do not find any violation of the requirements mentioned in section 40(b) and therefore the addition made by the ld. Assessing Officer by presuming excess interest at the rate of 6% is deleted. Accordingly, ground No. 3 raised by the assessee is allowed.
Ground No. 4 is not pressed by the assessee. Accordingly, it is dismissed as not pressed.