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2022 (11) TMI 1219 - AT - Income TaxUnexplained Purchases - non compliance of notices u/s 133(6) to various parties for verification of purchases - AO made addition of the total purchases made by the assessee holding that the purchases were unverifiable - HELD THAT:- As the fact of production of the parties by the ld. CIT(A) in the presence of the AO has not been in dispute. The fact that the parties supplied milk to the assessee company could not be disputed. AO has also held that milk purchases were made not from farmers but through the intermediaries of the milk traders, thus contradicted the fact that the purchases remain unverifiable. AO resorting to disallowance of entire purchases is bad in law. Since, the identity, genuineness and supply-worthiness of all the parties has been proved by the way of statement recorded u/s 131 of the Act and all the suppliers were duly paid, we refrain from interfering with the order of the ld. CIT(A) on this issue. Accordingly, Ground No. 1 & 2 of the Revenue’s Appeal are dismissed. Disallowance Section 40A(3) - cash payments made to milk suppliers - AO held that the provisions of Rule 6DD(e) were not applicable to the facts of the assessee’s case - HELD THAT:- CIT(A) has gone to the root cause of the disallowance u/s 40A(3) and owing to the genuineness of the purchase, provisions of the rules and dates/days on which the payments have been made and the purpose thereof, has cogently held that the provisions of Section 40A(3) are not attracted in this case, the decision of which, we decline to interfere with the order of the ld. CIT(A). As a consequence, the adhoc estimation @ 0.23% of the sales made by the ld. CIT(A) is also liable to be deleted. Ad-hoc estimated disallowances - AO made ad-hoc disallowance of 30% on the power fuel, packing material and repairs & maintenance and on administrative & distribution expenses and also on finance charges - CIT (A) restricted it to 10% on adhoc basis and deleted the disallowance made on financial charges - HELD THAT:- We hold that no disallowance is called for on financial charges owing to submission of complete documentary evidences. Hence, the order of the ld. CIT(A) deleting the financial expenses is affirmed. With regard to the ad-hoc disallowances on account of transport and administrative expenses, since they are ad-hoc in nature and indistinct rather than a generalized solution adaptable to collateral instances, we restrict to disallowance to 5% on ad-hoc basis. Accordingly, the Revenue’s Ground are partly allowed. Deemed Dividend u/s 2(22)(e) - Common shareholders in company advancing loans - on perusal of annexure 12 of the balance sheet, assessee company has to pay amount as advance taken from said concern and Shri Malook Nagar was having 84.11% share holding in M/s AIMS Promoters Private Limited and 66.81% in the assessee company - CIT-A deleted the addition - HELD THAT:- The assessee company did not hold any shares in the AIMS Promoters Pvt. Ltd. Therefore, the assessee Company neither the registered nor the beneficial share holders of M/s AIMS Promoters Pvt. Ltd. Thus we do not find any infirmity or error committed by Ld. CIT(A) in deleting the addition on account of deemed dividend u/s 2(22)(e) of the Act.
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