2017 (10) TMI 928 - AT - Income Tax

Unexplained Purchases - accommodation bills of purchases - additions based on information was received by the A.O from the investigation wing - Held that - We are not persuaded to be in agreement with the contention of the assessee that the A.O had merely proceeded on the basis of human probabilities and suspicion, as we find that the assessee had after duly appreciating the evidence available on record carried out the exercise of estimation of the trading results in the hands of the assessee, which we are of the considered view can safely be characterised as a well reasoned one. That as regards the objection of the assessee to the reference of the G.P. rate of certain parties, we are of the considered view that the same were duly confronted to the assessee by the A.O during the course of the assessment proceedings and no objections at any stage was raised as regards the same by the assessee. Still further, we find that it is not a case that the A.O had transposed the trading result of any concern as against that of the assessee, but had merely benchmarked the trading results of the assessee in the backdrop of that of certain concerns operating in the trade line of the assessee, keeping in view the turnover parameter. We further find that the assessee had assailed the addition of ₹ 41,37,804/- made by the A.O for the reason that he had referred to the same as an addition made on account of Unexplained expenditure while culminating the assessment. We are unable to accept the aforesaid contention of the assessee, for the reason that though it remains as a matter of fact that the A.O had used the term Unexplained expenditure in the body of the assessment order, but then he had qualified the same by specifically using the term as discussed above , which we find was used in context of the observations recorded by the A.O at Para 3.11, which clearly revealed that the addition of ₹ 41,37,804/-(supra) was made in the hands of the assessee on account of Unexplained Purchases .

Summary

Issues Involved:
1. Deletion of estimated addition regarding doubtful purchases.
2. Opportunity to cross-examine parties whose statements were used.
3. Reliance on investigation wing's findings.
4. Genuineness of purchases and payments through banking channels.
5. Rejection of books of accounts without adequate basis.
6. Use of Gross Profit (GP) comparison with other entities.
7. Characterization of addition as 'unexplained expenditure' versus 'unexplained purchases.'

Detailed Analysis:

1. Deletion of Estimated Addition Regarding Doubtful Purchases:
The assessee argued that the CIT(A) erred in not deleting the entire estimated addition made by the assessing officer (A.O) concerning doubtful purchases from certain parties. The assessee contended that the purchases were genuine and recorded in the books of accounts. However, the A.O, based on information from the investigation wing, concluded that the purchases were not genuine and were merely accommodation entries. The A.O estimated a higher gross profit (GP) margin of 17% compared to the 12% shown by the assessee, resulting in an addition of ?41,37,804. The CIT(A) provided partial relief by reducing the GP rate to 16%, considering VAT payments.

2. Opportunity to Cross-Examine Parties:
The assessee claimed that they were not provided with copies of the statements and the opportunity to cross-examine the parties whose statements were used to treat the purchases as accommodation entries. The tribunal found that the A.O had established that the assessee failed to discharge the primary onus of proving the genuineness of the purchase transactions. The A.O's addition was based on independent observations and benchmarking the trading results of the assessee against other concerns in the same trade line.

3. Reliance on Investigation Wing's Findings:
The assessee argued that the A.O and CIT(A) erred by relying on the investigation wing's findings without independent verification. The tribunal noted that the A.O did not solely rely on the investigation wing's report but also on the assessee's failure to substantiate the genuineness of the purchases. The A.O's approach of estimating the GP margin was found to be reasonable and well-reasoned.

4. Genuineness of Purchases and Payments Through Banking Channels:
The assessee contended that the purchases were genuine as payments were made through account payee cheques. However, the tribunal held that merely making payments through cheques does not conclusively prove the genuineness of the transactions. The assessee failed to provide documentary evidence to substantiate the purchases, such as confirmations from the supplier parties or their bank account details.

5. Rejection of Books of Accounts Without Adequate Basis:
The assessee argued that the A.O made the addition without rejecting the books of accounts. The tribunal found that the A.O did not doubt the purchase and sale of goods but questioned the source of the purchases. The A.O's estimation of the GP margin was based on a comparison with other concerns in the same trade line, which was found to be a reasonable approach.

6. Use of Gross Profit (GP) Comparison with Other Entities:
The assessee challenged the comparison of their GP with other entities, arguing that different parameters were used. The tribunal noted that the A.O had benchmarked the trading results of the assessee against other concerns in the same trade line, considering the turnover parameter. The tribunal found this approach to be reasonable and well-reasoned.

7. Characterization of Addition as 'Unexplained Expenditure' Versus 'Unexplained Purchases':
The assessee contended that the A.O incorrectly characterized the addition as 'unexplained expenditure' instead of 'unexplained purchases.' The tribunal clarified that although the A.O used the term 'unexplained expenditure,' it was qualified by the context of 'unexplained purchases' as discussed in the assessment order. The tribunal dismissed this contention.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the order of the CIT(A) and the A.O's estimation of the GP margin. The tribunal found that the assessee failed to substantiate the genuineness of the purchase transactions and that the A.O's approach was reasonable and well-reasoned. The appeal was dismissed in its entirety.