The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has directed the Assessing Officer (AO) to restrict disallowance at 2% of the bogus purchases.
The assessee, R R Carwell Pvt. Ltd. is engaged in the application/job-work of Auto Additives and Car care Products across various two-wheelers and four-wheelers authorized service centers. It filed its return of income on 25.09.2012 declaring income of Rs.58,04,170/-. The return was duly processed under section 143(1) determining the returned income.
The assessee could not produce the principle officer/director of M/s White Collar Management Service Pvt. Ltd., the A.O. asked the assessee to explain as to why the amount of Rs.10,00,000/- received from M/s White Collar Management Service Pvt Ltd as an unsecured loan should not be treated as unaccounted/bogus and added back to its total income for the year under consideration.
The assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs.1,03,22,034/- being 25% of the purchases amounting to Rs.4,12,88,138/- by rejecting the books of accounts u/s 145(3) of the Act and directing the Assessing Officer to restrict the disallowance to 20% in cases the parties are found to be in existence by Ward Inspector.
The Coram of Judicial Member, Suchitra Kamble, and Accountant Member, R.K.Panda has directed the Assessing Officer to restrict the profit on such bogus purchases at 2% of the total purchases.
“The assessee submitted that the said papers contain cash balance & expenses incurred on incentive and salary paid to employees at various places. It was explained that the cash generated out of billing grey market purchases was used for incurring the business expenditure. However, the AO was not satisfied with the arguments advanced by the assessee and noted that the assessee failed to show that the transactions are recorded in the books of accounts. He, therefore, invoked the provisions of section 69A of the Act and made the addition of Rs.9,80,410/-,” the ITAT noted while deciding the issue in respect of addition of Rs.9,80,410/- u/s 69A of the Act.
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