2015 (10) TMI 2504 - AT - Income Tax

Bogus purchases - Held that - We find that the FAA had,during the appellate proceedings directed the assessee to file various details with regard to the discrepancies highlighted by the AO in his assessment order, that after obtaining the reconciliation statement she had given a categorical finding of fact that in case of 44 parties the amount claimed as purchases made of raw cotton remained outstanding as on 31.3.2009,that in case of remaining purchases the assessee had produced necessary documents, that there was no justification for upholding the entire addition, that the AO had accepted the sales with regard to purchases made, that entire purchases could not be doubted.We find that after segregating the purchases in two categories the FAA had judiciously upheld a portion of it and deleted the other portion.It was found by her that the assessee had not proved the purchases to the tune of ₹ 1.05 crores and she had confirmed the addition.As far as the remaining addition is concerned,we are of the opinion that her order does not suffer from any legal infirmity especially after the reconciliation statement was filed by the assessee before her. - Decided against revenue

Summary

Issues Involved:
Challenging the orders of CIT(A) regarding disallowance of purchases.

Analysis:
1. The appellant, an individual engaged in cotton trading, filed a return declaring income of Rs. 50.52 lakhs. The Assessing Officer (AO) completed the assessment, determining income at Rs. 4,68,38,180. The main issue was restricting disallowance of purchases to Rs. 1,05,43,677, as opposed to Rs. 3,95,75,587 disallowed during assessment. The AO found discrepancies in Unregistered Dealers purchases, cash payments, and outstanding balances. The appellant failed to provide sufficient evidence, leading the AO to treat Rs. 3.95 crores as unexplained credit under section 68 of the Act.

2. The appellant appealed to the First Appellate Authority (FAA), claiming to trade in Kapas, paying farmers in cash, and selling to a processing house. However, discrepancies in quantity details and lack of evidence supporting claims were noted. The FAA directed the appellant to reconcile the discrepancies, but the evidence provided was insufficient. The FAA upheld a disallowance of Rs. 1.05 crores out of the total Rs. 3.95 crores.

3. During the ITAT hearing, the Appellant Representative argued that detailed reconciliations and evidence were presented to the FAA, who accepted purchases worth Rs. 2.90 crores, limiting disallowance to Rs. 1.05 crores. The appellant cited precedents and highlighted improved gross profit margins. The Departmental Representative supported the AO's decision.

4. The ITAT reviewed the submissions and evidence. They noted that the FAA had diligently analyzed the discrepancies highlighted by the AO and made a factual determination on outstanding purchases. The ITAT agreed with the FAA's decision to uphold a portion of the disallowance while deleting the rest. Citing the case of Nikunj Exim Enterprises Pvt. Ltd., the ITAT emphasized the importance of reconciliation statements and upheld the FAA's decision to disallow Rs. 1.05 crores. The appeal by the AO was dismissed, affirming the FAA's order.

In conclusion, the ITAT upheld the FAA's decision regarding the disallowance of purchases, emphasizing the importance of providing substantive evidence to support claims and the significance of reconciliation statements in such cases.