TMI Blog2011 (3) TMI 1820X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government of U.P. It is engaged in a number of activities including distribution and marketing of agriculture products, warehousing and transport etc. During the course of assessment proceedings, the Assessing Officer examined details/documents called for and furnished by the assessee from time to time. The AO made the addition of ₹ 63,00,570.18 observing as under : 1. The expenses on account of Transport, Handling and Palledari have been claimed at ₹ 63,00,57,018.74 for which details, bills/vouchers were called for. In this regard details were furnished vide letter dated 9.12.2009.However, only few bills/ vouchers relating to Head office only were produced. Therefore, taking a moderate and reasonable view 1% of the claim, which works out to ₹ 63,00,570.18 is disallowed and added back to the total income on account of non-verifiability of the expenses claimed. 4. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee took the following line of arguments: (i) That the AO made the disallowance on the ground that the assessee could not produce the bills and vouchers in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses, which were not verifiable. It is seen that the assessee had maintained regular books of account which were subjected to audit by statutory/tax audit and audited Balance Sheets were furnished with the Income-tax returns. Auditors have not given any adverse remarks in their respective report. The AO has also not pointed out any defect in the books of account of the assessee. The AO herself has admitted that she has examined the books of account, bills and vouchers on test-check basis, even then the AO has nowhere pointed out any deficiencies/discrepancies in the books of account. It is also seen that the AO has not commented upon the method of accounting regularly followed by the assessee. In case the books of account of the assessee were not reliable, the AO should have rejected the book results. Looking to the entire facts and circumstances of the present case, we do not see any infirmity in the order of the ld.CIT(A) on this issue and accordingly we uphold the order of the ld.CIT(A) on this count. Consequently, we reject first part of ground No.1 of the appeal. 6. As regards the second part of ground No.1, the AO disallowed ₹ 14,52,276.32 being 5% of the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO. It seems that the AO has disallowed 5% of the claim making general observation that only few vouchers pertaining to Head Office were produced and the claim was not verifiable. In fact, the AO has not specified the extent to which the expenses were not verifiable. In our view, there was no justification in suspecting the genuineness of the entire claim and resorting to an estimated disallowance. The AO has also not given any reason for estimating the disallowance at 5% of the claim. The AO has not doubted the correctness of the books of account regularly maintained by the assessee. The books of account maintained by the assessee were audited by the statutory/tax audit. None of the Auditors has given any adverse comments in the report. It seems that the disallowance was made for the sake of disallowance without giving any cogent reason. Considering the entire facts and circumstances of the present case, the ad hoc addition made by the AO has rightly been deleted by the ld.CIT(A). In that view of the matter, we uphold the order of the ld.CIT(A) and dismiss the second part of ground no.1 of the appeal also. 9. Ground No.2 of the appeal reads as under : 2. The Ld. CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily emerged during the previous year relevant to A.Y. 2007-08 and that no component of any brought forward balances embedded therein. The AO's conclusion does not seem to have been drawn objectively and with reference to the material available on record. In view of the facts and circumstances described and discussed above, I find no merits in the addition made by the AO. The addition is, therefore, directed to be deleted. 12. We have heard the rival submissions. We fully agree with this observation of the ld.CIT(A) that as to how the figure of ₹ 1,31,47,315.14 was arrived at. There is no indication in the order of the AO. Thus, the basic figure itself at which an addition at the rate of 1% is calculated suffers from ambiguity. It seems that the addition was made by invoking the provisions of Section 68 of the Income-tax Act,1961. Section 68 envisages the amount of credit to be charged as income, rather estimated percentage of such credit. Therefore, the disallowance made under Section 68 of the Act on percentage basis is not sustainable in law. The AO was required to specify each and every credit, which was not proved by the assessee. On the contrary, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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