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Issues involved: Appeal challenging Tribunal's order on addition of bogus purchases and unexplained trade credits.
Bogus Purchases: The assessee, a dealer in scrap items, was found to have made purchases not included in stock position, leading to an addition for purchase inflation. The AO added Rs. 4,48,126 to the value of purchase inflation. Similarly, credit purchases of Rs. 3,11,146 were accounted for, but notices to creditors returned unserved. The AO added this amount to income under section 68 of the IT Act. First Appellate Authority: The assessee argued that stock shortage was due to wastage of materials, not purchase inflation. The first appellate authority considered the addition under section 68 as under section 69, ruling in favor of the assessee. The Tribunal upheld the CIT(A)'s order, prompting the Revenue's appeal. Judgment on Bogus Purchases: The High Court found the assessee's explanations inconsistent, initially claiming stock omission was due to waste materials, then changing stance. As a scrap metal dealer, purchasing with impurities is illogical. The weight of waste material claimed by the assessee was deemed bogus (8.2833 tons). The Court reversed the Tribunal's decision, reinstating the first appellate authority's order and restoring the assessment. Unexplained Trade Credits: The AO deemed credit entries as bogus, as creditors were untraceable. The assessee argued that payments were made in the subsequent year, which the Department accepted. The Court acknowledged the burden of proof on the assessee but remanded the matter to the AO for further consideration. If in the subsequent year, creditors are identified and payments verified, the addition of Rs. 3,11,146 will be deleted. Conclusion: The appeal was allowed in part, with the High Court ruling in favor of the Revenue on the issue of bogus purchases and remanding the matter of unexplained trade credits for further examination.
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