2017 (5) TMI 1525 - HC - Income Tax

Invoking provision of section 145(3) - veracity and correctness of the books of accounts is substantially accepted by revenue - Held that - So far as unverified purchases are concerned by not producing the suppliers the appellant failed to prove purchases of precious and semi precious stones to the extent of 14, 72, 455/-. By filing confirmations and copy of accounts TIN and PAN and RST/CST No. etc at the most the existence of the suppliers could be proved on paper but all other evidences indicate that the suppliers were not having required infrastructures and business of the precious and semi precious stones at the relevant time. The existence of business of the suppliers could not be established beyond doubt. Further as the wages payments were not fully verifiable and therefore application of provisions of section 145(3) is hereby upheld. The issue is required to be answered in favour of the assessee

Summary

Issues:
Assessment of trading addition based on unverified purchases and wages, application of Section 145(3) of the Income Tax Act, substantial question of law regarding invoking Section 145(3).

Analysis:
1. The appellant challenged the Tribunal's decision dismissing the appeal due to doubts regarding purchases from certain suppliers and unvouched wages. The AO rejected the books of accounts, citing doubts about purchases and a significant fall in the G.P. rate compared to the previous year.

2. The AO estimated the business profit by applying a higher G.P. rate, which was partially reduced by the CIT (A) but still resulted in a trading addition. The court framed a substantial question of law regarding the invocation of Section 145(3) even when the books of accounts were substantially accepted.

3. The Tribunal upheld the application of Section 145(3) based on the unverified purchases and wages, noting that the suppliers were not produced and lacked necessary infrastructure. The Tribunal emphasized the importance of verifying claimed wages and the reasons for the decline in the G.P. rate.

4. The CIT (A) supported the Tribunal's decision, highlighting the failure to prove the purchases and wages, leading to the application of Section 145(3). The court ultimately ruled in favor of the assessee, allowing the appeal but clarifying that it would not set a precedent for future assessments, leaving room for independent consideration in subsequent years.