2017 (5) TMI 1368 - AT - Income Tax

Addition made on the basis of declaration of the assessee during search action - bogus purchases - Held that - The assessee has filed copy of ledger extracts of Shree Sai Industries and Soham Metal Pvt. Ltd. for the financial year 2004-05 indicating purchases made during the financial year starting from 01-04-2004 to 31-03-2005. The Department has not raised any doubt over the ledger extracts furnished by the assessee. The letter dated 28-03-2012 along with Annexure-I was filed by the assessee shortly after search. The said letter clearly indicates that the additional income declared includes opening balances for Financial Year 2004-05. We do not find any infirmity in the findings of Commissioner of Income Tax (Appeals) in deleting the addition. - Decided against revenue

Summary

Issues involved:
Appeal against deletion of addition made by Assessing Officer based on declaration during search action for assessment year 2005-06.

Analysis:
1. Background: The Department appealed against the deletion of an addition of ?1,14,45,953 made by the Assessing Officer based on the declaration during a search action conducted under section 132 of the Income Tax Act, 1961. The search was carried out at the premises of a company engaged in fabrication and dealing in MS and SS items.

2. Contention: The Department contended that the assessee had declared additional income of ?3,95,50,591 during the search, but later filed a return declaring only ?2,87,65,689. The Department argued that the assessee's bifurcation of the amounts was an afterthought to avoid paying tax on the entire addition.

3. Assessee's Defense: The assessee explained that the declared additional income included opening balances from the previous year and only the bogus purchases debited during the financial year 2004-05 should be considered for the assessment year 2005-06. The Commissioner of Income Tax (Appeals) accepted this explanation and deleted the addition.

4. Judgment: The Commissioner of Income Tax (Appeals) justified the deletion by noting that the lower additional income declared in the return was due to deducting the opening balances related to previous year's bogus purchases. The Commissioner found that the assessee had correctly offered the additional income based on the purchases made during the relevant year. The Tribunal upheld the Commissioner's decision, emphasizing that the Department failed to challenge the documents presented by the assessee, which clearly supported the explanation provided.

5. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision to delete the addition. The judgment highlighted the importance of verifying the details provided by the assessee and conducting proper inquiries before making additions based on search action declarations.