2017 (4) TMI 571 - AT - Income Tax

Unexplained purchase u/s 69C - addition of the peak of financial transaction - Held that - The books of accounts of appellant are not maintained on account of any regular business activity but merely it records make-believe transactions that existed only on paper, to build a reservoir of bogus stock earnings in crores which could be transacted on paper so as to explain the introduction of unaccounted cash in the other actual running business of the group or of others. Therefore, the entries were bereft of reality and are prepared only to escape any negative observations of the auditors and authorities. Further, as the total amount invested by the assessee company in the above transaction will properly be taxed if the peak amount is taken as income of the assessee which Ld. CIT appeal has adjudicated, with which we also agree. In view of this we do not find any infirmity in the order of the Ld. CIT appeal in restricting the addition on account of bogus purchases and bogus administrative expenses of ₹ 8517740/ and ₹ 346294/ to the extent of ₹ 1392364/ on the peak basis. - Decided against revenue

Summary

Issues:
1. Unexplained purchase under section 69C of the Income Tax Act, 1961.
2. Deletion of addition made by the Assessing Officer for disallowance of expenses.
3. Reduction of the addition by the CIT (A) to the peak amount invested.

Issue 1: Unexplained Purchase under Section 69C:
The case involved an appeal by the revenue against the order of the CIT (A) regarding unexplained purchases under section 69C of the Income Tax Act. The assessee, a company dealing in wholesale trading, had its income tax return for the Assessment Year 2008-09 scrutinized due to its association with a group under search and seizure operations. The Assessing Officer added unexplained expenses to the total income of the assessee, which was disputed in the appeal. The CIT (A) deleted a significant portion of the addition, retaining only the peak balance basis addition. The revenue contended that the CIT (A) erred in reducing the addition to the peak amount invested, arguing that the company was involved in providing accommodation entries and infusing unaccounted money in other group companies through fictitious transactions.

Issue 2: Deletion of Addition for Disallowance of Expenses:
The revenue challenged the deletion of the addition made by the Assessing Officer for disallowance of expenses by the CIT (A). The departmental representative argued that the company operated as an accommodation entry provider, and the rejection of books of accounts justified sustaining the addition of bogus purchases. The authorized representative, on the other hand, cited similar cases where such additions were deleted, and referred to legal precedents supporting the assessee's position. The Tribunal considered the submissions of both parties, the lower authorities' orders, and the evidence provided by the appellant. It noted discrepancies in the Assessing Officer's examination of the submitted details and found no valid reason to disregard the CIT (A)'s decision to restrict the addition to the peak amount invested.

Issue 3: Reduction of Addition to Peak Amount Invested:
The core issue revolved around the reduction of the addition by the CIT (A) to the peak amount invested by the assessee. The Tribunal analyzed the facts of the case, including the nature of the company's transactions and the lack of proper maintenance of accounts. It compared the case to similar precedents where such additions were deleted, emphasizing the need for a realistic assessment of the transactions. The Tribunal agreed with the CIT (A)'s decision to limit the addition based on the peak balance, considering the fictitious nature of the transactions and the lack of genuine business activity. Ultimately, the Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s order.

In conclusion, the Tribunal's judgment upheld the CIT (A)'s decision to reduce the addition made by the Assessing Officer, emphasizing the need for a thorough examination of the facts and circumstances surrounding the unexplained purchases and expenses. The case highlighted the importance of maintaining genuine business activities and the proper documentation of transactions to avoid tax implications.