2018 (12) TMI 1691 - AT - Income Tax

Bogus purchases u/s 69C - AO has accepted the sale of eggs. However he doubted the purchases when he accepted the sale - HELD THAT - Sale of eggs cannot happen without eggs are there in assessee s possession and so the entire addition of purchase of eggs of certain parties as done in this case cannot be countenanced. AO cannot disallow the purchase without reducing either the sales or the stock by a matching sum. So we are of the opinion that even if the eggs purchased by the assessee are not from the parties shown in the books the assessee infact had purchased the eggs from some other party which was eventually sold. So the entire purchase cannot be added and only the profit embedded in the sales can be added. We note that the assessee has shown the GP @ 3.5%. Relying on the decision of Hon ble Gujarat High Court in a similar case reported as CIT Vs. Bholanath Poly Fab Pvt.Ltd. 2013 (10) TMI 933 - GUJARAT HIGH COURT and CIT Vs. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT we consider the GP @ 5% would be sufficient in the facts and circumstances of the case for the interest of justice in this case. Addition on account of cash purchases u/s 40A(3) - HELD THAT - Since the AO has not doubted the genuineness of the purchases made by cash by the assessee from M/s. Paul Egg Centre by applying the ratio as held by Crescent Export Syndicate 2008 (7) TMI 977 - CALCUTTA HIGH COURT of the opinion that no disallowance was warranted so we order deletion of the addition.

Summary

Issues:
1. Addition of &8377; 7,21,803/- as bogus purchases
2. Addition of &8377; 4,26,021/- on account of cash purchases

Issue 1: Addition of &8377; 7,21,803/- as bogus purchases

The appeal was against the Ld. CIT(A)'s decision confirming the addition of &8377; 7,21,803/- as bogus purchases. The AO treated the sum as bogus under section 69C of the Act due to cash payments for purchases violating section 40A(3) and purchases made out of books. The ITAT noted that while the AO accepted the sales of eggs, he doubted the purchases. The AR argued that all purchases and sales were regularly recorded. The ITAT held that the entire purchase could not be added as the assessee had purchased eggs from some other party, even if not the ones shown in the books. Relying on previous court decisions, the ITAT allowed the appeal partly, considering a GP of 5% instead of 3.5%.

Issue 2: Addition of &8377; 4,26,021/- on account of cash purchases

The appeal challenged the Ld. CIT(A)'s decision confirming the addition of &8377; 4,26,021/- made by the AO on account of cash purchases. The AO found that the assessee had made cash payments to M/s. Paul Egg Centre in violation of sec. 40A(3) of the Act. The ITAT noted that the genuineness of the cash payment was not disputed, as confirmed by the owner of M/s. Paul Egg Centre. Relying on a Calcutta High Court decision, the ITAT held that since the genuineness of the purchases was not doubted, no disallowance was warranted. Consequently, the addition was deleted, and the appeal of the assessee was allowed.

In conclusion, the ITAT allowed the appeal partly in the first issue and fully in the second issue, deleting the additions made by the AO and confirmed by the Ld. CIT(A) in both cases.