2014 (1) TMI 399 - HC - Income Tax

Unexplained cash credits - Held that - As the purchase price for the export entitlements was paid through account-payee cheques, the purchase could not be fully disallowed - One M/s Krishna Enterprises had sold such export entitlements of the same category to M/s Pashupati Fabrics Ltd. at a rate of Rs.8 per sq. mtr - The CIT (A), based on this rate made an inference that any amount paid by the assessee in excess of Rs.8 per sq. mtr. should be disallowed. Genuineness of purchase transactions - Held that - The material which was purchased from three parties was in due course of business against issue slips which were maintained by the assessee for the issue of raw material for production of finished goods - The CIT (A) also relied on the primary evidence which had been produced by the assessee including the stock-register - Since complete details had not been furnished, the CIT (A) held that certain amount of dis-allowance would be necessary though not entirely - The CIT (A) noted that the average rate paid by the assessee for the purchase of fabrics during the year was Rs.125.35 per mtr whereas the average rate paid in respect of the three disputed parties was Rs.165.40 per sq. mtr - The CIT disallowed the excess amount - Decided against Revenue.

Summary

Issues:
1. Addition of amount due to alleged bogus purchase and transactions.
2. Addition of amount due to untraceable sellers and lack of proof of genuineness of transactions.

Analysis:
1. The first issue raised was regarding the addition of Rs.1.09 crores due to alleged bogus purchase transactions. The Assessing Officer contended that the sellers of import entitlements had not confirmed the sale to the assessee, were untraceable, and the paid amount was immediately withdrawn from their bank accounts. The CIT (A) noted that the assessee had indeed made exports and that the purchase price was paid through account-payee cheques. The CIT (A) allowed the purchase to a certain extent based on market rates, resulting in a confirmed addition of Rs.11.15 lacs.

2. The second issue involved an addition of Rs.3.25 crores by the Assessing Officer due to untraceable sellers and lack of proof of transaction genuineness. The CIT (A) found that the material was purchased for business use against maintained issue slips and relied on primary evidence like the stock-register. While acknowledging incomplete details, the CIT (A) disallowed the amount paid in excess of the average rate paid for fabrics during the year. The Tribunal upheld the CIT (A)'s findings, emphasizing the factual assessment and evidence appreciation conducted.

In conclusion, after carefully considering the CIT (A)'s order as affirmed by the Tribunal, the High Court dismissed the appeal. The decision was based on factual assessments and evidence evaluation, leading to no substantial questions of law arising. The judgment highlighted the importance of thorough examination of evidence in tax matters to determine the genuineness of transactions and the applicability of additions.