2009 (6) TMI 601 - AT - Income Tax

Genuine/ Bogus Purchases - A search operation was carried out by the Department and it was found that there are several entities which were created only to issue purchase bills where no actual supply of precious and semi-precious stones were ever made - Supreme Court of India in the case of Kachwala Gems vs. Jt. CIT (2006 -TMI - 3365 - SUPREME COURT) and Tribunal, Jaipur Bench decision in the case of Shri Shrikishan Malpani, bogus purchases was considered as a defect in the maintenance of accounts and therefore, books of account were rejected after applying the provisions of s. 145(3) of the Act - The AO applied higher GP rate of 25 per cent on declared sales of2,68,65,383 and made trading addition of60,44,714 -There is no justification for application of 25 per cent. GP rate on the total turnover of about Rs. 8.91 crores and in making an addition of Rs. 2.33 crores. In such circumstances and facts of the case, the learned CIT(A) is not justified in sustaining the complete addition of doubtful purchases. To meet both the ends of justice and to plug the leakage of revenue, we direct the AO to sustain the addition of Rs. 5 lacs. Therefore, the assessee gets the part relief ll the transactions were made by account payee cheque including interest payment and therefore, there can be no adverse view regarding the cash creditor. The confirmation in respect of transaction under consideration has already been submitted. - Addition can not be made Interest Section 234B and 234D is mandatory and consequential in nature - Appeal is partly allowed and partly dismissed

Summary

Issues:
1. Verification of purchases from various parties.
2. Application of section 145(3) of the Act.
3. Treatment of unverifiable purchases.
4. Addition of deemed income under section 68.
5. Charging of interest under sections 234B and 234D.

Issue 1 - Verification of Purchases:
The appeals were filed against the order of the CIT(A) for the assessment year 2005-06, regarding the genuineness of purchases from specific parties. The AO found that purchases from certain parties could not be verified, leading to suspicions of non-genuine transactions. The Tribunal analyzed the evidence provided by the assessee and the findings of the AO, including the lack of specific inquiries conducted by the AO. The Tribunal concluded that while some purchases were unverified or bogus, there was insufficient evidence to reject the books of account entirely.

Issue 2 - Application of Section 145(3) of the Act:
The Tribunal confirmed the applicability of section 145(3) of the Act based on the findings related to unverified purchases. The AO had applied a higher GP rate on the turnover, leading to substantial trading additions. However, the Tribunal disagreed with the AO's approach and directed a lower addition to be sustained, considering the nature of the transactions and the lack of conclusive evidence against all parties involved.

Issue 3 - Treatment of Unverifiable Purchases:
The Tribunal considered the specific cases of unverifiable purchases from different suppliers, highlighting the lack of independent inquiries by the AO in some instances. While the assessee failed to fully discharge its burden of proof, the Tribunal noted that the AO did not conduct thorough investigations or issue summons to key parties. Ultimately, the Tribunal allowed partial relief to the assessee, acknowledging the complexities of the case and the need for a balanced approach.

Issue 4 - Addition of Deemed Income under Section 68:
The AO had made additions under section 68 for deemed income related to certain creditors. However, the CIT(A) deleted the entire addition based on additional evidence provided by the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing the genuineness of the transactions and the reasonable cause for the delay in submitting confirmations.

Issue 5 - Charging of Interest under Sections 234B and 234D:
The Tribunal addressed the assessee's contention regarding the charging of interest under sections 234B and 234D, noting that such charges are mandatory and consequential in nature. The Tribunal partly allowed the appeal of the assessee and dismissed the appeal of the Revenue.

In conclusion, the Tribunal's judgment provided detailed analysis and clarification on various issues related to the genuineness of transactions, application of relevant sections of the Act, treatment of unverified purchases, addition of deemed income, and charging of interest under specific sections. The decision reflected a balanced approach considering the evidence presented and the procedural aspects of the case.