2015 (7) TMI 1225 - AT - Income Tax

Disallowance for excess purchase - difference in comparison to purchase reflected in Profit & Loss account entered in the C.P.U. found and impounded during the course of survey u/s 133A - Held that - What the first appellate authority ought to have caused, proving or validating his inference of the purchase as reflected being a subset of that disclosed subsequently. Though the Revenue has disallowed purchases, what it in effect has is to consider the assessee s trading results as deflated to that extent. As shall be apparent, no definite finding, one way or the other, can be issued in the absence of the sales figure up to 03.03.2008. And, two, in the event of the two trading results being not in agreement, the absence of the assessee s explanation, if any, toward the same, so as to be considered for being satisfactory, cogent, etc. on merits, or not so. We, accordingly, restore the matter back to the file of the A.O. to allow the assessee an opportunity to explain the difference, with reference to its accounts, between the gross profit obtaining up to the date of survey, covering a period of little over 11 months of the year, with that disclosed for the entire year and, thus, having not deflated the latter to any extent. - Decided in favour of assessee by way of remand. Addition u/s 68 - Held that - The assessee has clearly not discharged the onus on it u/s. 68 toward satisfactorily proving the credit. Rather, on the contrary, it is apparent that the assessee s books of account were not complete, as found during survey, a finding as to which has been given by the first appellate authority and confirmed by us, holding that the same would not by itself lead to the conclusion of the same being correct. Sales, and even purchases, have not been fully recorded. Cash in hand as on 28.02.2008, as per the impugned books, is at (-) ₹ 52,60,066.the impugned cash credits, stated to be unsecured loans, do not appear in these accounts, completely discrediting the assessee s claim in its regard. If cash was required for business purposes, why was the same not recorded in the books? - Decided against assessee. Unexplained investment u/s.69 - documents/loose sheets were found, inventories and impounded during survey - Held that - The loose sheets/documents are not on record. If, as stated, these are dumb documents, not representing actual transactions, as contended by the assessee, no case for addition is made out. Though the onus to exhibit so is on the assessee; it claiming the same to be dumb documents, the Revenue, in our view, has not discharged the primary onus to show that the same represented information from which a reasonable inference as to their representing transactions could be drawn. As aforestated, as much as even the relevant documents are not on record. The assessee, on its part, has explained the transactions on most of the sheets. No addition, under the circumstances, is called for, and we decline interference. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance for excess purchase.
2. Deletion of addition on account of unexplained cash credit under Section 68.
3. Deletion of addition on account of non-verified transactions recorded in impounded documents.

Detailed Analysis:

1. Deletion of Addition on Account of Disallowance for Excess Purchase:
The assessee, a firm in the retail business of readymade garments, was subject to a survey under Section 133A of the Income Tax Act on 03.03.2008. During the survey, the CPU of its computer system and various documents were impounded. The physical inventory of stock-in-trade was valued at Rs. 80,69,629, while the Profit & Loss (P&L) Account for the period 01.04.2007 to 28.02.2008 reflected purchases at Rs. 77,73,568. However, the P&L account submitted during the assessment proceedings showed purchases at Rs. 1,05,27,313 for the period 01.04.2007 to 03.03.2008, indicating a discrepancy of Rs. 25,91,871. The Assessing Officer (A.O.) disallowed the excess purchases, but the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the data on the computer system was incomplete and the purchases were genuine.

The Tribunal noted that the CIT(A) did not make a finding on whether the assessee explained the difference in purchases. The data on the hard disk was not old or irrelevant, and the assessee was not maintaining two sets of books. The Tribunal agreed with the CIT(A) that the data was incomplete but questioned the genuineness of the additional purchases. The Tribunal restored the matter to the A.O. to allow the assessee to explain the difference with reference to its accounts and issue a definite finding of fact.

2. Deletion of Addition on Account of Unexplained Cash Credit Under Section 68:
The assessee was found to have availed cash loans aggregating to Rs. 4,00,000 from various persons during the year. The assessee provided confirmations, affidavits, and identification proofs of the creditors. The A.O. did not find the explanation satisfactory under Section 68, but the CIT(A) held that the initial onus was discharged by the assessee, shifting the burden to the Revenue.

The Tribunal observed that the assessee only established the identity of the creditors but failed to provide material evidence on their capacity and the genuineness of the transactions. The creditors' income was below or marginally above the taxable limit, and no evidence of their agricultural income or business was provided. The loans were not received through banking channels, and no interest was provided for in the accounts. The Tribunal concluded that the assessee did not discharge the onus under Section 68 and confirmed the addition of Rs. 4,00,000 as unexplained cash credits.

3. Deletion of Addition on Account of Non-Verified Transactions Recorded in Impounded Documents:
During the survey, certain documents and loose sheets were impounded, and the assessee was required to reconcile the transactions with its books of account. The A.O. aggregated the non-verified entries and assessed them as income under Section 69. The CIT(A) deleted the addition, stating that the documents were rough notings and could not be treated as income.

The Tribunal noted that the loose sheets/documents were not on record and if they were dumb documents, no case for addition was made out. The Tribunal held that the Revenue did not discharge the primary onus to show that the documents represented transactions. The assessee explained most of the transactions, and no addition was warranted. The Tribunal declined interference and upheld the deletion of Rs. 1,14,936.

Conclusion:
The Tribunal partly allowed the assessee's appeal and partly allowed it for statistical purposes, restoring the matter regarding excess purchases to the A.O. for a fresh examination and confirming the addition of unexplained cash credits while upholding the deletion of the addition for non-verified transactions.