2013 (11) TMI 1665 - AT - Income Tax

Unexplained purchases - Held that - It is an undisputed fact that Assessee deals in grey cloth and processed cloth and had obtained bank finance for working capital by hypothecation of the aforesaid stock. CIT(A) while deleting the addition has noted that AO has compared the value and quantity of stock of grey submitted to the bank with that of book stock but had not made comparision of processed cloth, the quantitative details of which were also submitted to the bank. He has further noted that the aggregate stock of grey cloth and processed stock for the month of June 2003 as per the books of the assessee was ₹ 91.76 lacs as against the value of stock of ₹ 93.46 lacs submitted to the bank. He has further noted that for the month of Aug to Sept 2003 the stock submitted to the bank was lower than the stock as per books which therefore suggest that stock statement submitted to the bank was incorrect. He has further noted that AO has not brought any independent evidence which can prove that Assessee has purchased grey cloth out of undisclosed sources or Assessee was in fact in possession of higher quantity of stock. Before us, the Revenue has not brought any material on record to controvert the findings of CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of unexplained purchases.
2. Deletion of addition made on account of estimation of profit on suppressed sales.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Purchases:
The Revenue appealed against the deletion of an addition of Rs. 52,50,000/- made by the Assessing Officer (AO) on account of unexplained purchases. The AO observed discrepancies between the stock shown in the books of the assessee and the stock statement submitted to the bank. The AO noted that the assessee did not show 2,50,000 meters of grey fabric valued at Rs. 52,50,000/- in its books of account but included it in the stock statement to the bank. The AO concluded that this stock was purchased from undisclosed sources and added it to the income.

The CIT(A) deleted the addition, noting that the assessee had shown higher stock in its books compared to the stock statement submitted to the bank. The CIT(A) observed that the AO had only compared the grey stock and ignored the processed stock, which was also part of the total stock. The CIT(A) emphasized that the aggregate stock in the books was higher than that in the bank statement, suggesting that the stock statement submitted to the bank was incorrect. The CIT(A) also highlighted that the AO did not bring any independent evidence to prove that the assessee purchased grey cloth from undisclosed sources or possessed higher stock than recorded.

2. Deletion of Addition on Account of Estimation of Profit on Suppressed Sales:
The AO made an additional estimation of profit amounting to Rs. 5,25,000/- on the alleged suppressed sales, assuming that the unaccounted stock of grey fabric was sold without being recorded in the books. The CIT(A) also deleted this addition, reiterating that the overall stock as per the books was higher than the stock submitted to the bank. The CIT(A) pointed out that the AO's comparison was partial and did not consider the processed stock, which was substantial.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide any independent evidence to support the claim of unaccounted purchases or sales. The Tribunal observed that the assessee maintained complete quantitative records and its books were audited independently. The Tribunal agreed with the CIT(A) that the stock statements submitted to the bank were incorrect and that the AO's partial comparison was unjustified. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the deletion of both additions.

Conclusion:
The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld, with the Tribunal finding no reason to interfere with the CIT(A)'s findings. The additions made by the AO on account of unexplained purchases and estimated profit on suppressed sales were deleted, as the AO's conclusions were based on partial comparisons and lacked independent evidence.