ITAT directs AO to check disallowance

ITAT directs AO to check disallowance

In a recent judgment, the Delhi Bench of Income Tax Appellate Tribunal (ITAT) directed that the disallowance of bogus purchases be restricted to 2percent

R R Carwell Pvt Ltd., the assesse is involved in application/work on a various two-wheeler and four-wheeler authorized service centres with Auto Additives and Car Care Products. The company filed its income tax return on 25th September, 2012, revealing a profit of Rs.58,04,170/-. For determining the returned income, the return was processed in accordance with section 143(1).

A principal officer or director of M/s White Collar Management Service Pvt Ltd. the A.O could not be located by the assessor. Hence, the assessee was asked to prove the amount of Rs.10, 000,000/- received from M/s White Collar Management Service Pvt Ltd as an unsecured loan should not be considered as unaccounted/bogus and returned to the assessee's income for the year under review.

In challenging the CIT (A) order, the assessee refused to accept the books of accounts that represented 25percent of the purchases amounting to Rs.4,12,88,138/- and directed the Assessing Officer to restrict the disallowance to 20percent if the Ward Inspector finds the parties to the purchase.

White-Collar Management Service Pvt. couldn't provide the principal officer or director of the company. Ltd., the A.O. requested the assessor to explain why the amount of Rs.100,00,000/- received from M/s White Collar Management Service Pvt Ltd as an unsecured loan should not be deemed unaccounted/bogus and added back to its total income for the fiscal year.

Assignee has challenged the order of the CIT (A) regarding disallowance of Rs.1,03,22,034/- which is 25percent of the purchases amounting to Rs.4,12,88,138/-by rejecting the books of account u/s 145(3) of the Act and directing the Assessing Officer to reduce the disallowance to 20percent where the parties are found to be present by a Ward Inspector.

Suchitra Kamble and RK Panda, respectively the judges and the accountant members of Coronation, have directed the Assessing Officer to limit profit from bogus purchases to 2percent of the total.

According to the assessee, the papers exhibit cash balances and expenses incurred on compensation and salary paid to employees at various locations. As a result of billing grey market purchases, cash was generated for business expenditures.

Although the AO did not agree with the assessee's arguments, it did note that the assessee failed to show that the transactions were recorded in the books of accounts. The ITAT noted while deciding the issue regarding the addition of Rs.9,80,410/- u/s 69A of the Act that the applicant had invoked the provisions of Section 69A of the Act and made the addition of Rs.9,80,410/-.