2014 (6) TMI 967 - AT - Income Tax

Bogus purchases - entire addition made on the statement of one Shri Rakeshkumar M. Gupta and his family members - allegation of the Revenue that the said family members were issuing accommodation bills to the assessee - Held that - We find that the sales made by the assessee have been accepted. It is an elementary rule of accountancy as well as taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales otherwise it could amount to levy of income-tax on gross receipts or on sales. We further find that the AO has not commented upon the retraction made by Shri Rakeshkumar M. Gupta and his family members. We noticed that the said retraction was made by filing an affidavit. Nothing has been brought on record except for the statement of Shri Rakeshkumar M. Gupta which could suggest that the purchases made by the assessee are bogus. Considering the entire facts in totality and keeping in mind that no adverse inference has been drawn so far as sales are concerned we do not find any reason for making any disallowance on this account. The adhoc addition sustained by the Ld. CIT(A) is also without any basis and the same is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Bogus purchases and addition to income for assessment years 2006-07 and 2008-09.

Analysis:
For the assessment year 2006-07, the appellant, a trader in cotton and fabrics, faced scrutiny due to purchases from parties involved in issuing accommodation bills. The Assessing Officer (AO) treated a specific purchase amount as bogus, adding it to the appellant's income. The appellant contested this before the Ld. CIT(A), who made an adhoc addition of &8377; 1,35,000, reducing the original amount. The appellant appealed this decision, arguing against the treatment of purchases as bogus and the adhoc disallowance. The Departmental Representative supported the AO's findings.

Upon review, the Tribunal found the entire addition based on the statement of one individual and his family members. While the revenue alleged the issuance of accommodation bills, the Tribunal noted that sales by the appellant were accepted. Emphasizing the need to deduct purchase costs from sales to ascertain profits correctly, the Tribunal highlighted the lack of comment by the AO on the retraction made by the individual and his family members through an affidavit. With no substantial evidence suggesting the purchases were bogus, the Tribunal concluded that no disallowance was warranted. Consequently, the adhoc addition by the Ld. CIT(A) was deemed baseless and deleted, leading to the allowance of the appeals for both years.

This judgment underscores the importance of substantiated evidence in challenging additions to income and the necessity of considering all relevant facts before making assessments. The Tribunal's decision to overturn the adhoc addition showcases the significance of thorough scrutiny and adherence to accounting principles in tax matters.