2016 (3) TMI 1095 - AT - Income Tax

Addition being estimated profit on unexplained purchases - purchases treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra - Held that - Ostensibly the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax Department of the Government of Maharashtra. Quite clearly the Assessing Officer as well as CIT(Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods etc. Notably no independent enquiries have been conducted by the Assessing Officer. Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals) one of the points raised by the assessee was with respect to an opportunity to cross examine the four parties but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents which have been rendered under identical circumstances in our view the CIT(Appeals) erred in sustaining the part addition - Decided in favour of assessee

Summary

Issues:
Confirmation of addition of estimated profit on unexplained purchases.

Analysis:
1. The appeal was against the CIT(Appeals) order confirming an addition of Rs. 4,19,356 as estimated profit on unexplained purchases.

2. The appellant, a partnership firm engaged in the export business, filed a return declaring a total income of Rs. 3,49,320 for the Assessment Year 2009-10. The Assessing Officer reopened the assessment, alleging accommodation purchase bills of Rs. 77,51,496 from four parties were bogus. The Assessing Officer computed a profit margin of Rs. 9,68,937 on these purchases, which the CIT(A) reduced to Rs. 4,19,356, applying a gross profit rate of 5.41%.

3. The appellant contended that all sales were exports, thus no liability towards sales tax existed on its purchases. The appellant argued that similar cases before the Tribunal resulted in deletion of additions. The Departmental Representative supported the lower authorities' orders, citing information from the Sales Tax Department of Maharashtra.

4. The Tribunal noted that no independent inquiries were conducted by the Assessing Officer regarding the transactions with the four parties. The Tribunal found no evidence supporting the bogus purchase claims, especially considering the appellant's export-oriented sales, documented payments, and lack of cross-examination opportunities. Relying on previous decisions, the Tribunal held that the CIT(A) erred in sustaining the addition and directed the deletion of the entire amount added by the Assessing Officer.

5. As the appeal succeeded on the merits of the addition, the challenge against the initiation of proceedings under section 147/148 of the Income Tax Act was rendered academic and not adjudicated. Consequently, the appeal of the assessee was allowed.

This detailed analysis of the judgment highlights the key issues, arguments presented, findings of the Tribunal, and the final decision rendered in favor of the appellant.