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2021 (8) TMI 429 - AT - Income TaxAddition u/s 40A(2)(b) - purchases from related party - assessee failed to satisfy the AO as to whether the price paid for the goods purchased from M/s MSA Engineering Pvt. Ltd was at arms length or not? - genuineness of purchases was not established by the assessee - HELD THAT:- When ld. CIT (A) has arrived at the factual finding that assessee himself has not transported the goods nor carried out loading and unloading, the findings returned by the AO that the transfers made by the assessee are merely book entries are not sustainable. AO is blowing hot and cold in the same breath because at one point of time he has observed that transactions made by the assessee are only book entries and not genuine business transactions but at the same time recalculated the net profit at 1.5% of the sales turnover by rejecting the books of account which is not permissible under law. AO also stated that since M/s. MSA Engineering Pvt. Ltd. was a related party the tax auditor should have pointed out it out in tax audit report u/s 40A(2)(b) of the Act but at the same time has resorted to section 40A(2)(b) to observe that the purchases from M/s. MSA Engineering Pvt. Ltd. were not made at arm’s length. When the factual findings have come on record that assessee has not been transporting, inspecting, loading and unloading of goods, the findings given by AO are based upon conjectures and surmises. CIT (A) has rightly deleted the recalculated profit @ 1.5% and has allowed the salary of manager and a few executives and disallowed the remaining expenses - Decided against revenue.
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