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2024 (2) TMI 272 - AT - Income TaxEstimation of income - Bogus purchases - disallowance to 12.5% restricted by CIT - HELD THAT:- We are of the considered view that entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, in view of the above findings, we find no infirmity in the findings of the learned CIT(A) in restricting the disallowance to 12.5% of the amount of bogus purchases. We find that the same is also in line with the judgment of the Hon’ble jurisdictional High Court in PCIT v/s Paramshakti Distributors Ltd [2019 (7) TMI 838 - BOMBAY HIGH COURT]. Disallowance of sundry creditors - Addition u/s 68 - CIT(A) dismissed the appeal filed by the assessee on this issue and held that the assessee has provided the ledger extracts and payment through the bank account along with sample bills of such parties evidencing purchases, however, the assessee has neither furnished confirmation from these creditors nor produce such parties even during the remand proceedings - HELD THAT:- From the perusal of the ledger account of these parties in the books of the assessee, we find that the assessee made the purchases during the year and also made the payment. Accordingly, the balance outstanding was shown as sundry creditors in its balance sheet, which was added by the AO. Therefore, it cannot be disputed that the addition of outstanding trade creditors has been made under section 68 of the Act, as these parties did not respond to notices issued under section 133(6) of the Act and the assessee also could not furnish the confirmation from these parties. We find that the issue of whether unpaid trade creditors could be added under section 68 of the Act came up for consideration before a five-member Special Bench of the Tribunal in Manoj Agarwal [2008 (7) TMI 446 - ITAT DELHI-A] wherein held there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefor has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies. We find that in Smt. Madhu Solanki v/s ITO, [2021 (8) TMI 373 - ITAT BANGALORE] the coordinate bench of the Tribunal after considering the aforesaid decision held that the AO cannot make an addition of trade creditors under section 68 of the Act when the purchases made during the year and payments made during the year have been accepted. Thus since in the present case the purchases made by the assessee and the payment made during the year have not been disputed by the AO in respect of the parties shown as sundry creditors, we are of the view that the addition in respect of the balance sundry creditors is not sustainable. Accordingly, the AO is directed to delete the same. As a result, ground raised in assessee’s appeal is allowed. Ad hoc addition on account of lower household withdrawal and addition on account of various expenses - HELD THAT:- Having considered the submissions of both sides and perused the material available on record, we find that the AO has made the addition on an ad hoc basis without any relevant supporting documentation. Accordingly, we find no merits in these additions made by the AO and upheld by the learned CIT(A). Accordingly, we direct the AO to delete the addition on account of low household withdrawal, and various expenses incurred in cash. As a result, grounds raised in assessee’s appeal are allowed.
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