AL HAMD AGRO FOOD PRODUCTS PVT LTD,SARAI MIYAN vs. DC/ACIT, AAY KAR BHAWAN

The only issue to be decided in this appeal is as to whether the Learned CITA was justified in confirming the disallowance of expenses of Rs 97,99,086 on an adhoc basis in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of manufacture and trading of frozen buffalo meat products. The main source of income was from sale of frozen buffalo meat and their by-products and further the assessee company has also received some interest income on fixed deposits and rental income. The return of income for the assessment year 2018-19 was filed by the assessee company on 14-11-2018 declaring total income of Rs 51,54,85,440. The Learned AO observed that assessee had debited the following expenses to profit and loss account under the head ‘other expenses’ during the year under consideration:-

The Learned AO issued notice under section 142(1) of the Act dated 14- 12-2020 along with a detailed questionnaire to the assessee seeking for furnishing of all bills and vouchers for verification of the aforesaid expenses together with the ledger account copy. The Learned AO noted that inspite of several opportunities the assessee failed to furnish the same. Accordingly, the Learned AO concluded that 5% of the aforesaid expenditures could be treated as not incurred wholly and exclusively for the purpose of business and proceeded to disallow a sum of Rs 97,99,086 in the assessment. This action of the Learned AO was upheld by the Learned CITA.

From the list of expenses, we find that majority of the expenditure was incurred towards buffalo slaughtering expenses to the tune of Rs 16,57,54, 017 and the same duly subjected to deduction of tax at source by the assessee. During the course of assessment proceedings, the assessee had duly furnished the complete books of accounts, bills, vouchers, stock register, purchase details, and bank statements. The expenses bills and vouchers for all the heads were also produced before the Learned AO. Hence, the contentions of the Learned AO and CITA that no details were furnished are found to be factually incorrect. Further, the vouchers and bills of expenses under all the 8 heads for which disallowance was made were also again produced before the Learned CITA in physical form during the course of hearing. This fact is evident from the written submissions filed before the Learned CITA. It was also submitted that all the expenditures were paid through regular banking channels by account payee cheques. The assessee had also enclosed the ledger account of the entire expenses before the lower authorities. While this is so, there cannot be any ad- hoc disallowance of expenses that could be made. Further we find that the books of accounts of the assessee had not been rejected by the Learned AO by invoking the provisions of section 145(3) of the Act. There is absolutely no case for the lower authorities to make an ad-hoc disallowance at the rate of 5% of the aforesaid expenditure. Hence in the absence of rejection of book results and books of accounts of the assessee, the ad-hoc disallowance made by the lower authorities is hereby deleted. Accordingly, the grounds raised by the assessee are hereby allowed.

In the result, the appeal of the assessee in ITA No. 142/Agr/2025 is partly allowed.

We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had made purchases from Baloch Jamal Khan Bhuran Khan for Rs 9,89,91,987 and from Nasruddin Qureshi for Rs 69,93,57,000 during the year under consideration. It is not in dispute that the payments for the said purchases have been made by the assessee through regular banking channels. The assessee was asked to prove the veracity of the purchases made from the aforesaid parties. The assessee furnished the following documents:-

The assessee submitted that the animal trade is carried out by illiterate people and is an unorganized sector. The villagers or suppliers supply the animal at the factory. The assessee had not claimed any freight expenses as animals are supplied by the suppliers using their own transportation. As per system and custom of the trade, the bills are prepared by the assessee after Page | 5 slaughtering and the payment is made on the basis of weight of slaughtered meat. There is no GST on animals and hence no e-way bill is prepared. Purchase of animal is a routine business activity and there is no agreement or Memorandum of Understanding (MOU) signed with the suppliers. We find that the corresponding sales made by the assessee out of disputed purchases have not been doubted by the revenue. Further in the scrutiny assessment order of Nasruddin Qureshi, no adverse findings were recorded by his AO with regard to sales effected to assessee herein. The assessee had also duly explained its business of slaughtering in which it stated that it is done by illiterate people selling the animals. It was submitted that there is absolutely no evidence brought on record by the Learned AO / CITA to prove that there was any cash that was received back by the assessee from these suppliers after issuance of payments to them through regular banking channels. It was argued that there is absolutely no basis for resorting to estimation of profit element embedded in the value of disputed purchases @ 6.72% plus commission @ 1% thereon and making an addition in the sum of Rs 5,39,90,360 on account of purchases from Nasruddin Qureshi, based on the gross profit declared by the assessee in AYs 2017-18 and 2018-19 @ 6.72% and 6.50% respectively. We find that the audited financial statements of Nasruddin Qureshi is placed on record wherein it is found that he had disclosed sales of Rs 178,33,59,015, gross profit of Rs 47,93,381 and net profit of Rs 17,69,412. We find that the notice under section 133(6) issued by the Learned AO was duly responded by both the suppliers by furnishing proper explanation before the Learned AO duly confirming the transactions with the assessee. In our considered opinion, when the scrutiny assessment order has been framed in the hands of Nasruddin Qureshi by the revenue, the said party could not be categorized as ingenuine. As stated earlier, no adverse inference has been drawn by the AO of Nasruddin Qureshi in respect of transactions carried out with assessee. Hence we direct the Learned AO to delete the addition made in the sum of Rs 5,39,90,360 on account of profit estimation in respect of purchases made from Nasruddin Qureshi. Accordingly, the Ground No.1 raised by the assessee is allowed.

With regard to purchases made from Baloch Jamal Khan Bhuran Khan for Rs 9,89,91,987, we find that the assessee had furnished only the preliminary documents before the Learned AO as listed supra. It is pertinent to note that the corresponding sales made by the assessee out of purchases from this party had not been doubted by the revenue. Hence the only conclusion that could be drawn is that the assessee could have made purchases from the grey market in order to have some savings in indirect taxes. Hence only the profit element embedded in the value of such disputed purchases need to be added, which is estimated @ 2% in the peculiar facts and circumstances of the instant case. Considering the fact that assessee had made purchases from this party for the first time during the year under consideration and considering the fact that the audited financials and income tax assessment orders of the said party were not placed on record by the assessee, in our considered opinion, this profit estimation of 2% would meet the ends of justice and would be sufficient to take care of deficiencies in the documentation by the assessee. The Learned AO is directed to sustain the addition only to the extent of Rs 19,79,960 under section 37 of the Act with regard to Baloch Jamal Khan Bhuran Khan. Accordingly, the Ground No. 2 raised by the assessee is partly allowed.

In the result, the appeal of the assessee in ITA No. 144/AGR/2025 is partly allowed.

To sum up, both the appeals of the assessee are partly allowed.