2015 (10) TMI 88 - HC - Income Tax

Bogus purchases - ITAT deleted the addition - Held that - ITAT has noted that there was one vital fact overlooked by the AO as well as the CIT (A) which was that the above said entry has really no effect on the profits of the company as the assessee had not made any sales during the year and all the purchases including that of purchase of flat made during the year has been taken into closing stock which is apparent from the paper book page 7 and 43. When there is no effect on the profitability of the assessee, the confirmation of the addition by Ld. CIT(A) is not justified as there is no loss to the revenue as the effect of including the same amount in the purchases as well as in the closing stock nullifies each other s effect. Having heard the submissions of Mr. Sahni, learned Senior Standing counsel appearing for the Revenue, the Court is not satisfied that the ITAT has committed any legal error in coming to the aforementioned conclusion. - Decided against revenue.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Justification of deleting the addition made by the Assessing Officer.
3. Effect of the entry on the profits of the company.
4. Legal error in the conclusion of the ITAT.
5. Application of Section 150 of the Act by the Revenue.

Condonation of Delay:
The delay in re-filing the appeal was condoned by the court based on the reasons stated in the application, and the application was disposed of.

Addition by Assessing Officer:
The appeal by the Revenue was against the ITAT's order deleting the addition of Rs. 69,05,250 made by the Assessing Officer to the Assessee's income. The Assessee explained that the amount represented a purchase transaction for a flat, which was mistakenly accounted for in the previous year. The AO considered the transaction as bogus due to lack of documentary evidence. However, the ITAT noted that the transaction had no effect on the company's profits as no sales were made during the year, and all purchases were reflected in the closing stock. The ITAT found no justification for the addition, and the court upheld this conclusion.

Effect on Profits:
The ITAT highlighted that the entry in question did not impact the company's profitability since all purchases, including the flat, were part of the closing stock. As there was no loss to the revenue, the addition was deemed unjustified.

Legal Error by ITAT:
The court, after hearing the Revenue's submissions, found no legal error in the ITAT's conclusion regarding the lack of impact on the company's profits due to the disputed entry.

Application of Section 150:
The Revenue suggested using Section 150 of the Act to give effect to the ITAT's order in the subsequent year. The court refrained from commenting on this, stating that the Revenue's actions must comply with the law.

In conclusion, the appeal was dismissed, affirming the ITAT's decision to delete the addition made by the Assessing Officer, as the disputed entry had no effect on the company's profits.