2017 (8) TMI 1328 - AT - Income Tax

Addition of unexplained expenditure - profit estimation - Held that - As under Income-tax Act, the only real income can be taxed by the Revenue, even if the transaction is not verifiable due to any reason, the only taxable is the taxable income component and not aggregate of the transaction. After considering the fact and nature of business of assessee, we are of the opinion that in order to fulfill the gap of revenue leakage, the disallowance of reasonable percentage of impugned purchases would meet the end of justice. We have noted that neither the AO nor the ld. CIT(A) examined the Gross Profit or Net Profit ratio of assessee for previous or subsequent years. Considering the facts and the circumstances of the case, we are of the opinion that a reasonable disallowance of impugned purchases/ unexplained expenditure @ 12.5% would meet the end of justice. Hence, the AO is directed to restrict the disallowance on account of unexplained expenditure u/s 69C of the Act @ 12.5% of aggregate purchases (Rs. 43,84,048/-) of impugned purchases. With the directions the appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of unexplained expenditure.
2. Failure to produce evidence for genuineness of purchases.
3. Reliance on evidence collected during search proceedings.
4. Failure to consider retraction of statements made during survey.
5. Disallowance of purchases from specific parties.

Issue 1 - Disallowance of unexplained expenditure:
The judgment involves a series of appeals by the assessee against the order of the Commissioner of Income-tax (Appeals) regarding the disallowance of ?43,84,084 on account of unexplained expenditure. The assessee argued that the expenditure was genuine, supported by proper bills and payments made through cheques for material consumed in infrastructure projects. The Income Tax Department contended that the purchases were made from hawala parties, and the assessee failed to prove their genuineness. The tribunal observed that the purchases were not treated as bogus, but the expenditure incurred was unexplained. Ultimately, the tribunal directed a reasonable disallowance of 12.5% of the aggregate purchases as unexplained expenditure.

Issue 2 - Failure to produce evidence for genuineness of purchases:
The assessee failed to produce the parties for verification despite opportunities given, and the notice sent under section 133(6) to the parties was returned. The tribunal noted that the assessee did not provide confirmations from the parties, invoices, proof of transportation, or delivery challans for the purchases. The absence of sufficient evidence led to the confirmation of the disallowance by the Commissioner of Income-tax (Appeals).

Issue 3 - Reliance on evidence collected during search proceedings:
The tribunal highlighted that evidence collected during search proceedings, where a statement was recorded from a party admitting additional income, was a crucial factor in the case. However, the tribunal also noted that the retraction of such statements was not considered by the lower authorities, indicating a lack of comprehensive evaluation of all available evidence.

Issue 4 - Failure to consider retraction of statements made during survey:
The tribunal acknowledged the retraction made by the assessee from statements recorded during the survey, emphasizing the importance of considering all relevant information and not solely relying on initial admissions. The failure to give weight to the retraction was a point of contention in the appeal.

Issue 5 - Disallowance of purchases from specific parties:
The tribunal analyzed the specific purchases made from parties listed as hawala dealers, noting discrepancies in the genuineness of these transactions. The absence of verifiable details and failure to provide substantial evidence led to the disallowance of the aggregate purchases from these parties as unexplained expenditure.

Overall, the judgment delves into the intricacies of the case, emphasizing the need for concrete evidence to support expenditure claims and the importance of considering all available information, including retractions and statements made during surveys. The tribunal's decision to allow the appeals in part, with specific directions for a reasonable disallowance percentage, reflects a balanced approach to addressing the issues raised by the assessee.