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2017 (8) TMI 1437 - HC - Income TaxAddition on account of unverifiable purchases - rejection of books of accounts u/s 145(3) - Held that - mere speculation cannot be a ground for addition of income. There must be a some material substance either in the form of documents or the like to arrive at a ground for addition of income. See Chetnaben Shah Legal Heir of Jagdishchandra K.Shah Vs. The Income Tax Officer, War 10(3) 2016 (7) TMI 973 - GUJARAT HIGH COURT The authority will accept the law but the transaction whether it is genuine or not will be verified by the Assessing Officer - COMMISSIONER OF INCOME TAX, JAIPUR-I, JAIPUR (RAJ.) VERSUS GEMS PARADISE 2016 (11) TMI 1400 - RAJASTHAN HIGH COURT
Issues Involved:
1. Justification of the Tribunal's deletion of additions on account of unverifiable purchases. 2. Justification of the Tribunal's reduction of trading additions by applying a lower gross profit rate. 3. Justification of the Tribunal's deletion of additions made on account of excess stock found during search operations. Detailed Analysis: 1. Justification of the Tribunal's deletion of additions on account of unverifiable purchases: The appeals addressed whether the Tribunal was justified in deleting various additions made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] on account of unverifiable purchases. The Tribunal had confirmed the rejection of books of accounts under Section 145(3) of the Income Tax Act but still proceeded to delete or reduce the additions made by the AO. The High Court, referencing previous decisions such as "Vijay Proteins Ltd. Vs. Commissioner of Income Tax" and "Kailashben Manharlal Chokshi v. Commissioner of Income-tax," concluded that mere speculation cannot be a ground for addition of income. There must be substantial material evidence to support such additions. Consequently, the High Court found that the Tribunal was justified in deleting the additions where the AO had not provided sufficient corroborative evidence. 2. Justification of the Tribunal's reduction of trading additions by applying a lower gross profit rate: The appeals also questioned the Tribunal's decision to reduce the trading additions by applying a lower gross profit rate than what was applied by the AO. The Tribunal reduced the gross profit rate from 30% to various lower percentages (15%, 17%, 18%, and 20%) based on its previous orders and the specific circumstances of each case. The High Court noted that the Tribunal's approach was consistent with the principles laid down in earlier judgments, including those of the Supreme Court and the Gujarat High Court. The High Court upheld the Tribunal's decision to apply a lower gross profit rate, emphasizing that the AO's reliance on higher gross profit rates without adequate justification was not sustainable. 3. Justification of the Tribunal's deletion of additions made on account of excess stock found during search operations: The appeals further examined whether the Tribunal was justified in deleting additions made by the AO on account of excess stock found during search operations and valued by a registered valuer. The Tribunal had discarded the valuation of the registered valuer and deleted the entire addition. The High Court, referring to the case of "Chetnaben Shah Legal Heir of Jagdishchandra K.Shah Vs. The Income Tax Officer," observed that the CIT(A) had rightly appreciated the case based on sound principles of law and considered the statements made by the assessee. The High Court agreed with the Tribunal's decision, highlighting that additions based solely on statements recorded during search operations, without credible evidence, are not justified. Judgment Summary: The High Court provided a tabular summary of its decisions on the issues raised in each appeal: - Appeal No. 202/2012: Both questions answered in favor of the department against the assessee. - Appeal No. 203/2012: First question in favor of the assessee, second question in favor of the department. - Appeal No. 204/2012: Both questions answered in favor of the department against the assessee. - Appeal No. 205/2012: Both questions answered in favor of the department against the assessee. - Appeal No. 206/2012: First question in favor of the assessee, second question in favor of the department. - Appeal No. 208/2012: Both questions answered in favor of the department against the assessee. - Appeal No. 214/2012: First question answered in favor of the department. - Appeal No. 216/2012: First question in favor of the assessee, second question in favor of the department. Conclusion: The High Court disposed of all the appeals as indicated above, remitting the matter of bogus purchases back to the AO for fresh consideration. The parties were allowed to lead evidence, including cross-examination of witnesses and production of relevant documents.
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