2017 (3) TMI 1230 - AT - Income Tax

Addition under section 69C - Held that - We find that out of total purchases, the AO could not verify the purchases to the extent of ₹ 49,74,252/- when the notice under section 133(6) of the Act were issued which were returned un-served. We also find that the assessee could not produce any stock tally of the total purchases and sales made during the year and stocks left unsold at the year end. But the AO has not doubted the sales made during the course of assessment proceedings. The ld.CIT(A) has recorded the findings of facts that the assessee has not discharged the burden cast upon it including proving the genuineness of the transactions. CIT(A) also observed that the AO has also failed to discharge the responsibility cast upon under the Act. The AO has not disputed the books of accounts including the sales nor did verify or investigate the amount paid by way of cheques whether received by the appellant back from the purchasers. In our opinion, the ld.CIT(A) has rightly sustained the addition to the extent of 12% of the total purchases covering the leakages of revenue and also the possibility of savings which the assessee may have made by making purchases from gray market by not paying the regular and legal taxes of local bodies.- Decided against revenue

Summary

Issues:
Deletion of unexplained expenditure on account of bogus purchase under section 69C of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the deletion of unexplained expenditure on account of bogus purchase by the revenue. The assessee filed a return of income declaring a total income of ?17,77,230. During assessment proceedings, the AO observed purchases amounting to ?4.95 crores, with ?1 lakh purchases from 46 parties. Notices sent to verify the genuineness of purchases were not served to seven parties, treated as bogus by the AO based on Sales Tax Department's list of Hawala operators. The AO added these purchases to the total income under section 69C. In appeal, the CIT(A) sustained the addition of 12% of total purchases, amounting to ?5,96,910, as the appellant failed to prove the transactions' genuineness. The CIT(A) considered the lack of concrete evidence and upheld the addition based on the Gujarat High Court's decision regarding fair profit ratio.

The Tribunal noted that the AO could not verify purchases worth ?49,74,252 as notices were returned unserved. The assessee failed to provide stock tally or prove the genuineness of transactions, while the AO did not dispute sales or investigate cheque payments. The Tribunal agreed with the CIT(A)'s findings, upholding the addition of 12% of total purchases to cover revenue leakages and potential tax savings from gray market purchases. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and sustaining the addition.

In conclusion, the Tribunal upheld the CIT(A)'s decision to add 12% of total purchases as unexplained expenditure, considering the appellant's failure to substantiate the transactions' genuineness. The Tribunal found the addition necessary to cover revenue leakages and potential tax savings, ultimately dismissing the revenue's appeal.