2012 (4) TMI 617 - AT - Income Tax

Summary

Issues involved: Appeal against order of ld. CIT (A) for assessment year 2006-07 regarding addition of Rs. 4,79,175/- u/s 145(3) on account of unverifiable purchases.

Issue 1: Addition of Rs. 4,79,175/- under section 145(3) for unverifiable purchases

The assessee derived income from various sources including business from his proprietary concern, M/s. Precious Jewels. During assessment, the AO noted discrepancies in declared GP rate and unverifiable purchases totaling Rs. 19,16,700/- from two companies. Despite submissions of audited accounts, confirmations, and proper banking channels for payments, the AO rejected the books of account u/s 145(3) and added Rs. 4,79,175/- to trading account. The ld. CIT (A) upheld this addition based on the Tribunal's decision and estimation of GP @ 13%. However, the ITAT Jaipur Benches have consistently held that while rejection of books for unverifiable purchases is correct, the addition should be based on past history and current circumstances. Considering the improved GP rate and already taxed excess stock, a trading addition of Rs. 50,000/- was deemed appropriate to meet the ends of justice. The appeal was allowed in part, confirming the applicability of section 145(3) but reducing the addition to Rs. 50,000/-.

This judgment highlights the importance of maintaining verifiable records in business transactions and the judicial approach to determining trading additions based on past performance and current circumstances.