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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA
Before: SRI ABY T.VARKEYAND SHRI WASEEM AHMED
ORDER
Per Waseem Ahmed, AM
This is an appeal preferred by the assessee against the order of the Ld. CIT(A)-XXXVI, Kolkata, dated 11.12.2013 for assessment year 2007-08.
The facts in brief are that the assessee in the present case is an individual and is engaged in the retail business and repair and services. The assessee, for the year under consideration, filed its return of income declaring total income of Rs.5,22,846/- which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and accordingly notices u/s 143(2) and 142(1) of the Act were issued upon the assessee. The assessment was framed u/s 143(3) of the Act at a total income of Rs.21,65,180/-, after making certain additions/disallowances to the total income of the assessee. The disallowances/additions are discussed herein below.
2 I.T. A. No. 345/Kol/2014 Assessment Years: 2007-08
The first issue raised in this appeal is that, the Ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.15,07,636/-, on account of undisclosed purchases and profit thereon.
The assessee in the year under consideration has shown purchases for Rs. 1,52,55,960/- from M/s. Universal Sales (MUS in short). However, on confirmation u/s 133(6) of the Act, it was transpired that MUS has made total sales of Rs. 1,67,42,048/-. Thus a difference of Rs.14,86,088/- was observed by the AO and accordingly he called upon the assessee to explain the aforesaid difference in the amount of purchase shown by the assessee. However, the assessee denied the claim of such purchases from the party. The assessee further submitted that no payment was made to the party against such purchases. However, the AO during the assessment proceedings verified the necessary details provided by MUS, such as sales bills, vouchers, stock registers and output VAT and accordingly opined that the sale made by MUS is genuine. Finally, the AO treated the undisclosed purchases as undisclosed income of the assessee along with the profit element which was worked out to Rs. 21,548/- only. The AO disallowed a sum of Rs. 15,07,636/- and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that MUS has shown two sales bills in its books of accounts in the name of the assessee dt. 30.03.2007 for Rs.9,72,000/- and dated 30.03.2007 for Rs.5,17,000/- which was not purchased by the assessee. The supporting documents submitted by MUS such as sales bills and copy of challans are false documents. The assessee, however, requested to the Ld. CIT(A) to set aside the matter to the ITO for further verification. However, the Ld. CIT(A) has disregarded the contention of the assessee and confirmed the order of the AO by observing as under:
“2.3 Appellant’s submission and facts available on record has been carefully considered. It is seen that the discrepancy in purchases were confronted to the assessee during the assessment proceeding. In the case of M/s. Universal Sales where there is major discrepancy of sales, the bills, vouchers, stock register and output VAT for the seller were called for and examined. Accordingly, the A.O. had concluded that the sales shown by M/s. Universal sales but not accounted for by assessee was genuinely done to the assessee. During the appellate proceeding other than stating the same facts as stated before the A.O. no other fresh evidence has been produced. In fact there was no compliance to the notice issued for proceedings on 04.07.13, 13.07.13 and wherein it was mentioned that it was the final opportunity granted. In view of the above it is concluded that the A.O. had correctly added the unaccounted purchase and the profit thereof to the returned income. The appeal on this ground is dismissed.” 2
3 I.T. A. No. 345/Kol/2014 Assessment Years: 2007-08 Being aggrieved by the order of the Ld. CIT(A) the assessee is in second appeal before us on the following ground of appeal: 1.Against the disallowance of Rs.15,07,636/- (9,72,000 + 51,7000+ [profit 21,548). That the Ld. CIT(A) should have accepted the explanation as offered by the appellant and as such the confirmation of the addition of Rs.15,07,636/- is not justified.
6. Before us, The Ld. AR has re-iterated the same submission as made before the Ld. CIT(A). It was also submitted that the assessee has been purchasing the goods from MUS throughout the year. All the purchases from MUS were made on credit basis and the payment was made subsequently depending upon the availability of the funds. The Ld. AR in support of his claim has submitted the copy of the ledger of MUS, which is placed on record. Alternatively, the Ld. AR submitted that since the goods were purchased on credit basis which reflects that no undisclosed funds were invested by the assessee in the impugned purchases. Therefore, at the most, only the profit element of Rs.21,548/- can be added to the total income of the assessee. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contention of both the parties and perused the materials available on record. The issue in the instant case relates to the addition made by the lower authorities on account of undisclosed purchases and the profit attributable to such purchases. Admittedly, MUS has shown its sales to the assessee and which was duly verified by the AO on the basis of supporting evidence. However, on examination of the details submitted by the assessee, we find that the goods were purchased on credit basis. As there is outstanding credit balance in the books of the assessee, in the name of MUS. Thus, it can be presumed that the goods were purchased on the basis of credit. However, the lower authorities have not brought anything on record about the sales made by the assessee of such undisclosed purchases. If it is presumed that the sales of the goods have been duly recorded in the books of the assessee, then undisclosed purchases will become the income of the assessee in its entirety. Therefore, the lower authorities presumed that the undisclosed purchases have been sold without recording the same in the books of accounts. In such a situation, the entire amount of undisclosed purchases cannot be added to the total income of the assessee. 3
4 I.T. A. No. 345/Kol/2014 Assessment Years: 2007-08 7.1 Moreover, we find that the lower authorities have ascertained only the undisclosed purchases and that too on third party confirmation. The lower authorities have not brought anything on record about the sales of undisclosed purchases. In the absence of any information about the sales of undisclosed purchases, the entire amount of purchase cannot be treated as undisclosed profit of the assessee. Therefore, we are of the view that only profit element of Rs.21,548/- can be brought to tax. We also find that there is no allegation from the order of the lower authorities that the undisclosed purchases were made on cash basis. Besides MUS has shown sales in its books of accounts on credit basis. Therefore, the question of making addition of investment in such undisclosed purchases does not arise. In view of the above, we restrict the disallowance to Rs.21,548/-. Accordingly, AO is directed. Hence, this ground of appeal of the assessee is partly allowed.
8. The second issued raised by the assessee in this appeal is that the Ld. CIT(A) has confirmed the order of the AO by sustaining the disallowance of expenses on estimated basis.
9. The AO during the assessment proceedings has disallowed several expenses claimed by the assessee on the basis of estimation as detailed under:
SI Particulars of expenses Amount of expenses Percentage of Reasons for the Reasons for disallowances No. disallowance Disallowance 1. Delivery charges Rs.3,25,700/- 10% Rs.32,570/- Self-made vouchers and cash payment 2. Installation charges Rs.8,77,500/- 5% Rs.43,875/- Non-availability of supporting evidences 3. Teas & Tiffin Charges Rs.1,65,250/- 10% Rs.16,524/- Non-availability of bills and vouchers The aforesaid disallowances were added to the total income of the assessee.
Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the order of the AO by observing as under:-
“3.3 The appellant’s submission and the facts available on record has been carefully considered. The AO has disallowed a part of expenses, as the evidences produced in support of expenses claimed were incapable on cross verification regarding the genuineness of expense claimed. Therefore a part of expense was disallowed. During the appellate proceeding other than challenging the addition in a general manner, no evidence was produced to substantiate the appellant’s claim that the entire expense needs to be allowed. Therefore, it is concluded that 5 I.T. A. No. 345/Kol/2014 Assessment Years: 2007-08 the A.O. had correctly disallowed a part of expense claimed and the appeal on this ground is dismissed. Being aggrieved by the order of the Ld. CIT(A), the assessee is in second appeal before us on the following ground of appeal:
2. Adhoc Disallowance of Rs.32,570/- being 10% of Delivery Charges, Rs.43,875/- being 5% of Installation Charges, Rs.16,525/- being 10% of Tea and tiffin expenses.”
The Ld. AR before us submitted that all the books of accounts, documents, appeals and vouchers were produced at the time of assessment. The lower authorities have made the disallowances on surmises and conjunctures without pointing out any defect in the details submitted at the time of assessment. The Ld. AR prayed to the bench for the deletion of the aforesaid sum. On the other hand the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contention and perused the materials available on record. The issue in the instant case relates to the disallowances made by the lower authorities in respect of various expenses on estimated basis on the ground of non-availability of supporting evidence. The facts of the case have already been elaborated in the preceding paragraph and the same are not repeated here for the sake of brevity. On the perusal of the assessment records we find that the AO has disallowed 10% of delivery charges on the ground that the expenses was claimed on the basis of self made vouchers and therefore genuineness of the expenses was not ascertained. However on examination of AO order we notice certain lapses such as the AO has not brought anything on record about the nature of delivery charges whether these charges relate to the purchases or sale of goods or none of them. Presuming if it relates to the purchases and sales then the AO should have verified corresponding purchases and sales in order to establish the genuineness of the above expenses. In our view, there are certain situations and circumstances where the external documents in support of the expenses are not available. One of such expense appears to be delivery charges in the facts and circumstances of the given case. In the instant case the handmade vouchers were produced but the same were not verified as well as no defect was pointed out but the AO has disallowed the same on estimated basis. Therefore in our considered
6 I.T. A. No. 345/Kol/2014 Assessment Years: 2007-08 view the AO should have verified the expenses at the time assessment rather disallowing the same on the basis of estimation. The AO should have pointed out defects in respect to the specific vouchers before making the disallowance. In our considered view the AO should not disallow the expenses based on some suspicion, doubt and should not draw unreasonable inferences based on some unreasonable apprehensions. The AO has not brought on record any cogent reasons as to why this expenditure was to be disallowed. It is not the case that the expense was considered to be bogus or short comings in the vouchers in this regard as observed by the Revenue. No material has been placed before us by the Revenue to controvert the arguments of the ld. AR. In that view of the matter we find ourselves in no agreement with the reasoning and conclusion contained in the order of ld. CIT(A). With the result we reverse the finding of ld. CIT(A) with regard to delivery expenses. Now coming to the disallowance for Installation and teas & tiffin charges we find that the assessee has failed to provide the supporting evidence in respect to the aforesaid expenses. Therefore the AO had to resort for the purpose of disallowance on the basis of estimation. In our considered view it was the duty of the assessee to provide the necessary details as desired by the AO as the onus lies on the assessee. Even before us the learned AR has not produced any supporting evidence in support of his claim therefore the inclined not to interfere in the order of lower authorities. Hence this ground of appeal of the assessee is partly allowed.
14. The next issue raised by assessee in this appeal is that ld CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs. 34,000/- under the provisions of section 40A(3) of the Act.
15. At the outset, it was found that the ld AR has not advanced any argument on this issue therefore we are inclined to dismiss the same. Hence this ground of appeal of the assessee is dismissed.
16. In the result, assessee’s appeal stands partly allowed. Order pronounced in the Court on 15.03.2017.