2011 (11) TMI 733 - AT - Income Tax

Unexplained investment/ purchases u/s 69 - bogus purchases - Held that - The purchases made by the assessee are real and genuine for which the payments have been made through banking channels. Further it is confirmed that the sales made by the assessee were effected and the consideration was received by cross order cheques. Hence additions made by the AO deserves to be deleted in its entirety - Decided in favor of Assessee

Summary

Issues:
Cross appeals against the order passed by Ld. CIT(A) for A.Y 2007-08 - Addition of unexplained purchases/investment in purchases under section 69 of the I.T. Act, 1961 - Disallowance of unexplained investment - Genuineness of purchases made from certain concerns - Validity of addition made by the AO - Deletion of part of the addition by Ld. CIT(A) - Sustained addition by Ld. CIT(A) - Retraction of statement by Shri Rakesh Kumar Gupta - Evidence supporting the genuineness of purchases - Legal basis for additions made by the AO - Presumption in the absence of concrete evidence.

Analysis:
The appeals involved in this case were cross appeals against the order passed by Ld. CIT(A) for the assessment year 2007-08. The primary issue revolved around the addition of unexplained purchases/investment in purchases under section 69 of the I.T. Act, 1961. The AO had made an addition of a specific amount as unexplained purchases, which was later scaled down by Ld. CIT(A) to a lesser amount. The appellant contested for the deletion of the entire addition, while the revenue sought to uphold the addition made by the AO.

The assessee, engaged in trading cloth and fabrics, had made purchases from concerns of Shri Rakesh Kumar Gupta, which the AO deemed as bogus based on a statement obtained during a survey action. Shri Rakesh Kumar Gupta admitted to issuing accommodation entries without real purchases. However, the assessee contended that the purchases were genuine, supported by evidence of physical delivery and payment through banking channels. Despite Shri Rakesh Kumar Gupta's retraction of his earlier statement, the AO added the purchase amount to the assessee's income.

In the appeal before Ld. CIT(A), the assessee reiterated the genuineness of the purchases, presenting supporting evidence and emphasizing the retraction of the earlier statement by Shri Rakesh Kumar Gupta. Ld. CIT(A) partially sustained the addition based on a profit estimation and initial capital investment percentage. The department contested the deletion of part of the addition, arguing that the genuineness of purchases was not proven.

Upon careful consideration, the tribunal found that there was insufficient concrete evidence to support the AO's addition. Shri Rakesh Kumar Gupta's retraction and confirmation of genuine sales to the assessee, along with the evidence presented by the assessee, indicated the genuineness of the purchases. The tribunal concluded that the additions made by the AO were based on presumption and lacked a legal basis. Therefore, the tribunal decided to delete the additions in their entirety, dismissing the revenue's appeal and allowing the assessee's appeal.

In summary, the judgment focused on the genuineness of purchases made from specific concerns, the validity of the addition made by the AO, the retraction of statements, and the sufficiency of evidence to support the additions. The tribunal emphasized the importance of concrete evidence over presumption in tax assessments, leading to the deletion of the additions in favor of the assessee.