2017 (2) TMI 36 - HC - Income Tax

Addition of unexplained expenditure under Section 69C - rejection of the books of accounts u/s 145(3) - Held that - The main source of income of the Assessee was from salary and partly from commission and brokerage. During the year under consideration the assessee started export business in gems and stones and has earned income only from Export business and bank interests. During the year under consideration the assessee has declared total export turnover of ₹ 2,35,10,077/- upon which gross profit of 1,15,62,119/- was shown thereby giving a G.P. rate of 49.8%. This is the first year of business of the assessee. During the next financial year 2001-02 the assessee has declared total export turnover at ₹ 32,71,097/- upon which gross profit of ₹ 18,01,075/- is shown thereby giving a GP Rate of 55%. On perusal of the return filed for the assessment year 2003-04 i.e. financial year 2002-03, it is seen that the assessee has declared Nil export and has declared income from salary as was done previously before he started his export business. It appears that this is an isolated case of export by the assessee in past several years. In view of the above facts, it is clear that the assessee had done the business of export mainly for one fyear i.e. for the fyear under consideration. It is not understood as to how there was such a huge export turnover in one year. That too in the first year of business and then there was substantial fall in the next year and subsequently there was no business of export in any of the years. This shows that this is not the regular business of the assessee. Identical issue was decided by the Court in the case of Commissioner of Income Tax vs. M/s. Bright Future Gems 2016 (11) TMI 539 - RAJASTHAN HIGH COURT there is nothing on record to certify the stones which were verified by any of the valuer. In our view it is all paper transactions for the purpose of taking benefit of the export and tax benefits and we are of the opinion that it is a bogus purchase - Decide against assessee

Summary

Issues:
Challenge to Tribunal's order on unexplained expenditure under Section 69C and rejection of books under Section 145(3).

Analysis:
1. The appellant challenged the Tribunal's order on unexplained expenditure under Section 69C and rejection of books under Section 145(3). The substantial questions of law framed by the Court pertained to the justification of the Tribunal's actions. The facts revealed that the assessee's income source was mainly salary and commission, with a sudden shift to an export business resulting in a significant turnover in one year, followed by a substantial fall in the next year and no further export business in subsequent years. This raised doubts about the regularity of the export business conducted by the assessee.

2. The appellant's counsel cited a previous case to support their contention, emphasizing the need for a thorough examination of the transactions. The Court analyzed the evidence and found discrepancies in the purchases made by the assessee from Vinayak Overseas, questioning the genuineness of the transactions. The Tribunal's reliance on statements without concrete verification was deemed erroneous. Additionally, the lack of physical verification of the precious stones and reliance solely on paper transactions for export and tax benefits led the Court to conclude that the purchases were bogus.

3. Ultimately, the Court held in favor of the department, overturning the Tribunal's decision. The Court emphasized the need for adherence to legal provisions and the lack of substantiated evidence to support the genuineness of the transactions. The appeal was allowed in favor of the department, highlighting the importance of proper verification and compliance with the law in such cases.

This detailed analysis of the judgment outlines the issues raised, the arguments presented, and the Court's reasoning leading to the final decision in the case.