2017 (9) TMI 1575 - AT - Income Tax

Unexplained/unproved purchase/investments in purchase u/s. 69 - prove the genuineness of the purchases and sale transactions - Held that - In the Assessment Years before us i.e. 2006-07, 2008-09 and 2009-10 the assessee could not produce the necessary evidences to show that there is actual delivery of goods and in fact it is the finding of the Assessing Officer that the assessee expressed inability to produce any documents regarding the mode of delivery of material purchased and sold. The finding of the Assessing Officer is not rebutted with evidences. In the circumstances we cannot follow the order of the Tribunal for the Assessment Year 2007-08 and delete the entire addition of bogus purchases though vehemently relied upon by the Learned Counsel for the assessee. On a careful reading of the observations of the decision of the Ld.CIT(A) we do not find any valid reason to interfere with the findings and decision made by the Ld.CIT(A) in estimating the Gross Profit on such bogus purchases. However, in respect of the percentage adopted by the Ld.CIT(A) towards initial investment of capital on these purchases at 20% is on higher side. Thus, we direct the Assessing Officer to modify this percentage to 10% instead of 20% adopted by the Ld.CIT(A). Except for this percentage there is no infirmity in the order passed by the Ld.CIT(A) - Decided partly in favour of assessee.

Summary

Issues:
- Addition of unexplained/unproved purchase/investments in purchase under section 69 of the Income Tax Act, 1961.
- Disallowance of Gross Profit rate for purchases from specific parties due to lack of evidence of actual delivery of goods.

Analysis:

Issue 1: Addition of unexplained/unproved purchase/investments in purchase under section 69 of the Income Tax Act, 1961:
The assessee contested the addition of ?5,84,527 made by the Assessing Officer as unexplained/unproved purchase/investments in purchase. The contention was based on purchases from a specific party, Shri Rakesh Kumar Gupta, which were deemed non-genuine due to a statement made during survey proceedings. However, the assessee argued that the purchases were genuine and provided evidence during assessment proceedings. The Tribunal had previously deleted similar additions in the assessee's case for a different assessment year and in sister concerns. The Revenue asserted that the purchases were bogus as physical delivery of goods could not be proven. The Assessing Officer found a pattern in the purchases and sales, indicating lack of actual delivery. The Tribunal directed the Assessing Officer to prove the genuineness of transactions, which the assessee failed to do. The CIT(A) considered the retraction of the statement by Shri Rakesh Kumar Gupta and estimated the disallowance based on Gross Profit and initial investment capital. The CIT(A) upheld the addition of ?5,84,527, partially allowing the assessee's appeal.

Issue 2: Disallowance of Gross Profit rate for purchases from specific parties due to lack of evidence of actual delivery of goods:
The Revenue filed a cross-appeal for the Assessment Year 2008-09, challenging the direction to consider Gross Profit at 1.87% for purchases from Gupta parties without proof of actual delivery. The Tribunal had previously remanded the matter to prove the genuineness of transactions. The assessee failed to provide documents regarding the mode of delivery of purchased goods. The CIT(A) considered the statement from Shri Rakesh Kumar Gupta and estimated the disallowance based on Gross Profit and initial investment capital. The CIT(A) upheld the addition, modifying the percentage of initial investment capital from 20% to 10%. The Tribunal found no reason to interfere with the CIT(A)'s decision, partially allowing the assessee's appeal and dismissing the Revenue's appeal.

In conclusion, the Tribunal partially allowed the assessee's appeals and dismissed the Revenue's appeal concerning the addition of unexplained purchases and the disallowance of Gross Profit rate due to lack of evidence of actual delivery of goods. The CIT(A)'s decision was upheld with a modification in the percentage of initial investment capital considered.