VIRCHAND KHIMJI & CO.,MUMBAI vs. ITO 15(2)(3), MUMBAI

In this appeal, assessee is aggrieved by the action of CIT(A) confirming the adhoc addition of 3% in respect of transport, freight, telephone and travelling charges. Assessee is also aggrieved for confirming addition u/s.69C of Rs.2,26,136/- being amount paid to M/s. Hiten Enterprises and M/s. Ronak Overseas for purchase of miscellaneous office items.

In ground No.3 assessee is aggrieved for confirming the addition u/s.69C @2% of the total purchases made from M/s. Ronak Overseas.

Rival contentions have been heard and record perused.

Facts in brief are that the assessee is engaged in business of supply of food grains items like edible oil, ghee, provision stores etc., Return of 2 Virchand Khimji & Co., income declaring total income of Rs.12,61,162/- was filed by the assessee which was assessed at Rs.41,98,618/- after making the following additions: (i)Disallowance out of transport and freight Rs.10,00,000/- (ii)Disallowance out of Telephone and Travelling Rs. 65,957/- (iii) Unexplained Expenditure u/s.69C Rs.18,71,499/- 6. By the impugned order CIT(A) upheld the addition to the extent of 3% on these expenses and assessee is in further appeal before us.

We have considered rival contentions and carefully gone through the extract of comparative statement of freight, transport charges and sample self-made voucher in respect of transport charges paid. We found that transport charges paid by assessee through regular transporters were duly supported by their bills / cash memo and in other cases they are mostly supported by third party signed vouchers but prepared by the assessee’s staff and some time self-vouchers. Since vouchers are signed by third party, they cannot be termed as self-made vouchers simply on account of fact that the same are prepared by officials of the assessee in regular voucher forms in the regular course of business.

We had verified the sample copies of vouchers signed by the third parties and self-made vouchers and found that assessee has genuinely incurred the expenditure in regular course of business and adhoc disallowance so made by AO and party upheld by CIT(A) in respect of transport and freight is unwarranted. Accordingly, we delete the disallowance of transport / freight expenses so upheld by CIT(A).

In ground No. 2 & 3, assessee is aggrieved for upholding addition by CIT(A) u/s.69C.

We have gone through the orders of the authorities below and found that on the basis of information by sales tax department, AO had added the purchases made from Hiten Enterprises and Ronak Overseas in assessee’s income.

By the impugned order CIT(A) observed as under:- Considering the facts of this case and various case laws as above, it is not a case of bogus purchase. As per the ledger account of M/s. Ronak . Overseas, the total purchase is Rs.3.02 crores and outstanding balance as on 31.03.2012. is only Rs.963.00. Further from the nature and periodicity of transactions, it is seen that payments are made' shortly (within- 3-5 days) after purchase. Payments made are appearing in the bank .statement. Quantitative tally is not disputed. The payments are generally made bill wise. Purchase and payments are regular during the period of. transaction. The credit of 3-5 days cannot be said to be abnormal in this line of trade. Moreover, G.P shown .in these suspicious purchases is also similar to the G.P shown in other purchases.

Even after having the above observation, the CIT(A) upheld the addition of 2% on such purchases. We do not find any merit in the action of CIT(A). In so far as a clear finding has been given by him to the effect that out of total purchase of Rs.2.02 crores, during the year the outstanding balance as on 31/03/2012 was only Rs.963.00. The CIT(A)

In view of these findings, we do not find any merit from the addition so upheld by the CIT(A). Accordingly, we direct the AO to delete the addition in respect of purchases made from M/s. Hiten Enterprises and M/s. Ronak Overseas. We direct accordingly.

In the result, appeal of the assessee is allowed in part.