TMI Blog2019 (2) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure after adjusting for disallowance towards bogus purchases - Held that:- We have also considered the nature of these expenses and we are of the considered view that out of these expenses of ₹ 1,33,253/- disallowed by the authorities below , an amount of ₹ 4,001/- incurred towards Donations could not be allowed in the absence of supporting bills/details and its connection with business of the assessee or in the absence of requisite confirmatory details to be eligible for allowability as deduction u/s 80G or other relevant provisions of the 1961 Act. In the absence of supporting invoice/details , the disallowance of expense of donation of ₹ 4,001/- stood confirmed. Rent expenses allowability - Held that:- The assessee has only submitted self supporting vouchers with respect to payment of rent in cash without any details as to the premises on which rent its paid and its user for business purposes and under these circumstances, we disallow the claim of the assessee and confirm additions to the tune of ₹ 54,000/- claimed to be incurred by the assessee for alleged rent of which no details are filed even before us. This is the third stage of litigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal, Mumbai (hereinafter called the tribunal ) reads as under:- 1) In the facts and circumstances of case and in law, the learned CIT(A)-1, Thane erred in confirming the disallowance of purchases of ₹ 2,00,678/- as hawala purchase a) without providing any opportunity of cross examination of the witnesses or documents relied upon by the Assessing Officer and thus violating the law laid down by Honorable Supreme Court in the case of Kishanchand Chellaram v, CIT (1980) 125 ITR 713 and Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006.) b) on surmises and allegation that the suppliers have refunded cash to the appellant without any piece of evidence and enquiry in this regard, c) by rejecting the books of account duly maintained by the appellant and audited u/s. 44AB merely on surmises and conjectures without pointing out any defect in the books of accounts d) ignoring the quantitative reconciliation of purchases with corresponding sales, and e) ignoring the Gross Profit and Net Profit margins trend of preceding years. 2) In the facts and circumstances of case and in law, the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d then the whole corresponding sales against these purchases will become taxable which is not in accordance with law as the sale cannot happen without corresponding purchases. The assessee was asked by the AO to submit Invoices of Purchases, Bank Book, Cash Book, Ledger, Sales Register, Purchase Register , Financial Statements, Stock Register , Complete name and addresses of the parties from whom purchases were made and to whom corresponding sales were made. The AO also asked the assessee to furnish confirmation, delivery challans, lorry receipts and to produce the parties from whom purchases were made. The assessee failed to produce the aforesaid details before the AO during assessment proceedings which led the AO to make the additions to the tune of ₹ 2,00,678/- to the income of the assessee towards bogus purchases made by the assessee from these hawala dealers by invoking provisions of Section 69 of the 1961 Act. Further , additions of ₹ 65,18,663/- was made by the AO to the income of the assessee being 20% of the expenses incurred by the assessee because as per AO the assessee failed to prove the genuineness of these expenses and hence keeping in view that these exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following chart to show the gross profit and net profit rate for the year under consideration and the preceding and succeeding years - Particulars 2008-09 2009-10 2010-11 Sales 3,27,97,864 3,31,94,606 3,78,21,332 G.P. 12,16,462 12,07,794 13,78,447 GP Ratio 3.71% 3.64% 3.64% Expenses 8,67,015 8,09,994 9,86,123 NP 3,50,730 4,00,610 3,96,026 NP Ratio 1.07% 1.21% 1.05% 9. The appellant's submissions alongwith additional evidence filed by the appellant were forwarded to the AO for his comments. The AO submitted his remand report dated 28.02.2017, making following observations 05. .......... The assessee was also asked to produce the above mentioned parties for verification in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Jagdamba Trading Co. v. ITO (2007) 16 SOT 66 (Jodh) v) ITO v. Permanand (2008) 25 SOT 11 (Jodh) (URO) 1.4 Further the Assessing Officer relying upon information received from Sales-tax department and affidavit alleged to be submitted by these parties before sales tax authorities. The learned Assessing Officer has not provided us opportunity to cross examine the witnesses and documents relied upon by him. Therefore the assessment order passed by AO is a nullity as held by Honorable Supreme Court in Andaman Timber Industries v. Commissioner of Central Excises (Civil Appeal No. 4228 of 2006), Kishanchand Chellaram v. CIT (1980) 125 ITR 713 and Bombay High Court in CIT v. Ashish International (Bom HC - IT Appeal No. 4299 of 2009). 1.5 Honorable Mumbai has deleted the similar additions made solely on the basis of information received from sales tax department in the following cases : i) DCIT v. Rajeev G. Kalathil ITA No. 6727/Mum/2012 [2014] 51 taxmann.com 514 (Mumbai - Trib.) ii) Ramesh Kumar Co. v. ACIT 21(1) [ITA No. 2959/Mum/2014] iii) ITO v. Shri Deepak Popatlal Gala [ITA No. 5920/Mum/2013] iv) ACIT v. Shri Ramila Pravin Shah [ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. Therefore, the facts of the appellant's case are different from the facts of various case laws relied upon by him. The appellant does not maintain any day-to-day stock register. In the audit report no quantitative details of opening stock, purchases, sales and closing stock have been mentioned in column No. 28(a) which has been blank. Thus ii cannot be established that the goods shown as purchased from the above listed parties have been reflected into sales. For all these reasons it is held that the AO has rightly rejected the appellant's books of accounts u/s. 145(3) of the IT. Act. The addition of ₹ 3,45,048/-made by the AO on account of unproved purchases is therefore, confirmed. 12. The facts of the appellant s case for A.Y 2009-10 are similar to the facts of the A.Y 2010-11 as discussed above. The observations of the Assessing Officer in the remand report dated 26.03.2017 are also similar to the observations of the AO in the remand report dated 28.02.2017 for A.Y. 2010-11 discussed above. Therefore, for the detailed reasons discussed above, the addition on account of unproved purchases amounting to ₹ 2,00,678/- made for AY 2009-10 is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 was issued by the AO to the assessee u/s. 148 of the Act . The assessee could not produce these parties before the authorities below nor confirmation could be filed by the assessee. The Sales Tax Department has recorded the statement of these parties wherein these alleged bogus accommodation entry providers have confirmed that they were indulging in providing bogus accommodation entries without supplying any material. The assessee however have submitted reconciliation statement of purchases from these alleged hawala entry operators with sales made . The payments were also made through banking channels. The assessee could not produce these parties before the authorities below and also the facts remains that these parties have admitted to be indulging in bogus accommodation entries without supplying of any material wherein only bogus accommodation bills were only issued by these parties to several beneficiaries without supplying any material. The assessee could not produce confirmations from these parties before the authorities below . Under these circumstances , it is the profit embedded in these purchases which is required to be brought to tax wherein the assessee had obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport of the expenses to the tune of ₹ 1,33,253/- for AY 2009-10 which were incurred in cash, for which the AO proposed to learned CIT(A) that the additions to this extent of ₹ 1,33,253/- towards disallowance of expenditure be sustained. Similarly for AY 2010-11, the AO proposed confirmation of additions by way of disallowance of expenditure to the tune of ₹ 1,11,420/- in the hands of the assessee as these expenses were incurred in cash and no documentary evidences were submitted by the assessee. The learned CIT(A) confirmed the additions to this extent by holding as under: 13. As already discussed above, the appellant had not attended the assessment proceedings before the AO in response to various notices. The AO held that in the absence of documentary evidence, the various expenses claimed by the appellant remained unverified. He therefore, made a further addition of ₹ 74,16,051/- being 20% of the expenses claimed by the appellant at ₹ 3,70,80,258/- (i.e. ₹ 3,74,25,306 - 3,45,048/-). 14. During the course of present proceedings the appellant submitted that the disallowance out of expenses had been made without asking for requisite d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer that during the course of reassessment, some other income escaping assessment has come to his knowledge. He has simple made an ad hoc addition of 20% of entire expenses (including purchases). 2.2. Without prejudice to above legal submission, during the remand proceedings, we have submitted all the evidences in respect of the expenses debited in accounts and Assessing Officer has verified the same. The learned Assessing Officer has commented that no supporting bills are produced in respect of the following expenses: I) Donation ₹ 2,500/- II) Printing Stationary ₹ 4,576/- III) Rent ₹ 54,000/- IV) Sundry Expenses ₹ 5,701/- V) Tea Refreshment ₹ 22,284/- VI) Travelling Charges ₹ 22,359/- Total ₹ 1,11.420/- In this respect, we have to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Rs. 6,238/- Rent ₹ 54,000/- Sundry expenses ₹ 4,370/- Tea Refreshment ₹ 23,282/- Mobile Charges ₹ 8,095/- Labour Charges ₹ 12,985/- Travelling Charges ₹ 20,282/- Total ₹ 1,33,253/- 18. Therefore, the disallowance on account of non-allowable expenses for A.Y. 2009-10 is restricted to ₹ 1,33,253/-. The Assessing Officer is directed accordingly. 8. Thus in nutshell additions of ₹ 1,33,253/- was upheld by the Ld.CIT(A) which is a matter of challenge by the assessee before the tribunal as second appeal is filed by the assessee challenging confirmation of additions to the tune of ₹ 1,33,253/- by learned CIT(A). The learned counsel for the assessee has vehemently argued that these expenses are business expenses which have been incurred for business of the assessee although they were incurred in cash and are supported by self m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges, Travelling charges and Sundry Expenses. These expenses were claimed to be incurred in cash and are supported by self made vouchers. These expenses were claimed to have been incurred for business purposes. We have observed that the assessee has incurred total expenses of ₹ 3,25,93,318/-(after adjusting disallowance of ₹ 2,00,678/- towards alleged bogus purchases) and these expenses of ₹ 75,253/- disallowed by the AO are minor expenses vis-a-vis aforesaid total expenses incurred by the assessee and represents only 0.23% of the total expenses incurred by the assessee . These expenses were incurred in cash and the assessee had produced self made vouchers but it is claimed by the assessee that these expenses were incurred for business purposes. Keeping in view preponderance of probability as also keeping in view nature of these expenses and also noting that these expenses represents miniscule amount vis-a-vis total expenses incurred by the assessee , we found no reason and justification for doubting the contentions of the assessee as the assessee in any case submitted supporting self made vouchers prepared by the assessee. Thus we accept contention of the assess ..... 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