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2015 (4) TMI 95 - AT - Income TaxDisallowance of trading purchases - CIT(A) restricted the disallowance to 25% instead of deleting the entire disallowance - Held that - Seen in the light of the mandatory disclosure requirements of the Companies Act 1956, it is seen that the impugned purchases and sales have not been disclosed by the Assessee in its audited account and therefore the submission of the assessee that it had entered into trading transactions and had maintained the quantitative records does not carry any force and therefore, no disclosure of sales and purchases on the part of the Assessee goes to prove, that no such sale and purchases were made. We are of the view that the facts in the case of Vijay Protiens (1996 (1) TMI 144 - ITAT AHMEDABAD-C) as relied upon by CIT(A) are different and therefore the ratio is not applicable to the present facts because in the case of Vijay Protiens (supra) goods were found to have been purchased and sold which remained unaccounted, the goods which were purchased were used by the assessee in the production activity and therefore in those circumstances 25% of the purchases were disallowed. However in case in hand the Assessee could not prove the sale and purchases by placing any credible material on record. Thus CIT(A)'s action of restricting the addition cannot be upheld and therefore in the present facts, the AO was justified in making the addition and therefore we uphold the action of the AO. - Decided against assessee.
Issues Involved:
1. Disallowance of trading purchases. 2. Treatment of purchases as bogus. 3. Applicability of Section 69C of the Income Tax Act. 4. Evidentiary value of statements recorded under Section 133A. 5. Justification of additions made by the Assessing Officer (AO). 6. Reliance on judicial precedents and their applicability to the case. Detailed Analysis: 1. Disallowance of Trading Purchases: The Assessee contended that the CIT(A) erred in restricting the disallowance of trading purchases to 25% instead of deleting the entire disallowance made by the AO. The Assessee argued that the company made sales of the corresponding goods at a profit, maintained complete quantitative details of purchases and sales, and that the purchases were confirmed by the supplier in response to the notice issued by the AO. The Revenue, on the other hand, argued that the CIT(A) erred in restricting the addition to 25% of the bogus purchases, as the facts of the case were different from the precedent relied upon (Vijay Proteins Ltd). 2. Treatment of Purchases as Bogus: During the course of survey proceedings, the Branch Manager admitted that the purchases from certain parties were bogus and no actual delivery of goods took place. This was corroborated by another individual who admitted to issuing bogus sales bills to the Assessee on a commission basis. The AO concluded that the Assessee failed to establish with positive and admissible evidence that the purchases were genuine. Consequently, the AO treated the purchases as fictitious and added the amount to the income. 3. Applicability of Section 69C of the Income Tax Act: The AO invoked Section 69C, which deals with unexplained expenditure, and concluded that the Assessee had not satisfactorily explained the source of expenses for purchases. Therefore, the expenditure was deemed to be the income of the Assessee, and no deduction was allowed for such expenditure. 4. Evidentiary Value of Statements Recorded under Section 133A: The Assessee argued that the additions were made purely based on the statement of the Branch Manager recorded under Section 133A, which has no evidentiary value. The Assessee cited judicial precedents to support this claim. However, the AO noted that the statements were not retracted or proved to be untrue, and no material was placed on record by the Assessee to demonstrate that the statements were wrong. 5. Justification of Additions Made by the AO: The CIT(A) partially agreed with the AO's findings but reduced the addition to 25% of the bogus purchases, following the precedent set in Vijay Proteins Ltd. The CIT(A) reasoned that the Assessee had made sales of the corresponding goods and maintained quantitative details of purchases and sales. However, the Tribunal found that the facts of the present case were different from those in Vijay Proteins Ltd, as the Assessee failed to prove the sales and purchases with credible material. 6. Reliance on Judicial Precedents and Their Applicability: The Assessee relied on several judicial precedents to argue that the entire amount could not be disallowed. However, the Tribunal found that the facts of those cases were distinguishable from the present case. The Tribunal noted that the Assessee did not disclose the trading activity in its audited accounts, which was a mandatory requirement under the Companies Act, 1956. Therefore, the Tribunal concluded that the CIT(A)'s action of restricting the addition could not be upheld, and the AO was justified in making the addition. Conclusion: The Tribunal upheld the AO's addition of Rs. 2,99,03,076 to the income of the Assessee, rejecting the Assessee's appeal and allowing the Revenue's appeal. The Tribunal emphasized that the Assessee failed to prove the genuineness of the purchases and sales, and the statements recorded during the survey proceedings were not retracted or proved to be untrue. The Tribunal also found that the judicial precedents cited by the Assessee were not applicable to the present case. Final Order: The Assessee's appeal was dismissed, and the Revenue's appeal was allowed. The order was pronounced in open court on 26-03-2015.
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