2011 (3) TMI 1692 - AT - Income Tax

Summary

Issues involved: Cross appeals regarding disallowance of cash purchases u/s 40A(3) and addition on account of purchase of motorcycle and expenses on telephone and business promotion.

Disallowance of cash purchases u/s 40A(3):
The Assessing Officer disallowed an amount of Rs. 2,41,56,021 representing 25% of total purchases due to unverifiable cash payments. The CIT(A) disallowed 20% of cash purchases amounting to Rs. 1,16,03,862 as vendors' identity was not ascertainable. Assessee argued that most cash bills were below Rs. 20,000 and submitted purchase memos, but CIT(A) upheld the disallowance. Tribunal found internal memos unreliable and upheld 20% disallowance on cash purchases, while accepting account payee cheque purchases.

Purchase of motorcycle:
Assessee showed a motorcar as closing stock without claiming it as an expenditure. CIT(A) upheld addition of Rs. 7,95,639 stating lack of evidence for business purpose. Tribunal found motorcycle included in closing stock and no expenditure claimed, thus deleted the addition.

Expenses on telephone and business promotion:
CIT(A) disallowed 20% of vehicle running and maintenance expenses, stating the motor-car was for personal use. Assessee argued expenditure was for business purpose citing a court judgment. Tribunal deleted the disallowance based on the judgment.

In conclusion, the appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed.