2015 (12) TMI 1686 - AT - Income Tax

Bogus purchase - Held that - Non receipt of goods from the supplier and that the invoices were only pro-forma invoices, the AO ought to have examined the suppliers to find out the truth or otherwise of the claim made by the Assessee. The mere presence of authorization letter to truck drivers would not in our view prove the case of the revenue. Each of the 4 invoices are accompanied by delivery challan and in three of the delivery challans i.e., except the delivery challan M/S.Narayani Traders dated 24.7.2007 for ₹ 1,02,000/- none of the delivery challan evidence acknowledgement of having taken delivery of goods. Since delivery of goods under delivery challan dated 24.7.2007 for ₹ 1,02,000 is acknowledged and since the AO has presumed that these goods were sold by the Assessee, we are of the view that 5% G.P. on the value of the purchases alone should be added, as pleaded by the learned counsel for the Assessee before us. In respect of the other three purchases the addition is directed to be deleted as there is no evidence of the purchases having actually been completed by the Assessee. Undisclosed business income - addition by the AO by artificially calculating the figures of stock - Held that - The survey was conducted on 10.3.2008. There was no excess quantity of stock found physically in the business premises of the Assessee. The stock statement given to the bank is dated 29.2.2008. This stock statement was obviously incorrect as it was not in tune with the physical stock with the Assessee. In such circumstances the plea of the Assessee that the statement of stock given to the bank showed inflated figures and was only for the purpose of availing credit facility from the bank stands established. Therefore the impugned addition ought to have been deleted by the CIT(A).

Summary

Issues Involved:
1. Addition of Rs. 4,66,300/- as undisclosed business income based on unrecorded purchases.
2. Addition of Rs. 54,22,619/- as undisclosed business income based on discrepancies in stock statements submitted to the bank.

Detailed Analysis:

Issue 1: Addition of Rs. 4,66,300/- as Undisclosed Business Income
The Assessee, a wholesaler of grocery items, was subjected to a survey under Section 133A of the Income Tax Act, 1961, where four invoices and delivery notes evidencing purchases of rice and dal powder were found but not recorded in the books of accounts. The Assessee contended that these were pro-forma invoices and no actual transactions took place, as the delivery challans did not bear the Assessee's signature.

The Assessing Officer (AO) rejected this plea, citing authorization letters to truck drivers to take delivery of goods, and added Rs. 4,66,300/- as undisclosed business income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition.

Upon appeal, the Tribunal noted the lack of evidence for actual receipt of goods, except for one delivery challan dated 24.07.2007 for Rs. 1,02,000/-. The Tribunal held that only the gross profit (5%) on the acknowledged purchase value should be added to the Assessee's income, directing deletion of additions for the other three purchases due to lack of evidence. Thus, Ground No.2 & 3 were partly allowed.

Issue 2: Addition of Rs. 54,22,619/- as Undisclosed Business Income
During scrutiny proceedings, it was found that the Assessee had submitted a stock statement to the State Bank of India, showing stock valued at Rs. 77,61,680/- as on 29.02.2008. The AO, comparing this with the closing stock declared in the return of income (Rs. 35,36,937/-), added the difference of Rs. 54,22,619/- as undisclosed business income, rejecting the Assessee's explanation that the stock statement was inflated for obtaining better credit facilities.

The CIT(A) confirmed this addition. On further appeal, the Tribunal considered that during a survey on 10.03.2008, physical stock verification matched the stock as per the Assessee's books, indicating that the bank statement was indeed inflated. Citing several judicial precedents, the Tribunal concluded that stock statements given to banks are not conclusive evidence for income tax assessments if proven to be inflated for credit purposes. Consequently, the addition of Rs. 54,22,619/- was directed to be deleted, allowing Ground No.4 & 5.

Conclusion
The Tribunal partly allowed the appeal, directing partial deletion of additions related to undisclosed business income based on unrecorded purchases and entirely deleting the addition based on inflated stock statements submitted to the bank. The judgment emphasized the necessity of corroborative evidence and the non-conclusive nature of stock statements provided to banks for credit facilities.