Accost Media LLP Vs DCIT (Bombay High Court)
The Bombay High Court considered an appeal under Section 260A of the Income Tax Act, 1961 challenging the Income Tax Appellate Tribunal’s (ITAT) order dated 10 December 2024, which had upheld the Commissioner of Income Tax (Appeals)’ order restricting the disallowance of certain expenditure to 12.5% while dismissing both the assessee’s appeal and the Revenue’s cross-appeal. The appeal concerned Assessment Year 2021-22 and raised questions relating to compliance with Section 144B and the correctness of the disallowance.
The assessee, engaged in the business of painting and advertising, filed its return declaring income of Rs. 1,36,89,870, with its accounts audited under Section 44AB. During scrutiny, the Assessing Officer (AO) issued multiple notices under Section 142(1), seeking details including bank statements, audited financial statements, GST returns, purchase and sales details, and explanations for higher liabilities. The assessee furnished the requested information, explaining that delays in clearing liabilities were attributable to the COVID situation. Subsequently, the AO sought detailed information regarding purchases from 43 parties, including transportation details, which the assessee submitted electronically and through a physical copy.
On 9 December 2022, the AO issued a show-cause notice proposing to disallow expenditure of Rs. 22,80,97,511, questioning the genuineness of purchases because several suppliers had either not filed income tax returns, had reported no business income, or had disclosed substantially lower turnover despite filing GST returns. After considering the assessee’s response, the AO passed an assessment order on 23 December 2022, disallowing Rs. 17,31,43,257 towards purchases and labour charges, treating the amount as unexplained expenditure under Section 69C read with Section 115BBE, and initiating penalty proceedings under Section 271AAC(1). The AO relied on factors including the inability to physically verify three suppliers and the non-filing of income tax returns by several suppliers.
