2020 (10) TMI 832 - AT - Income Tax

Estimation of income - Unexplained expenditure u/s 69C - addition made on the basis of information received from the Sales Tax Department, Maharashtra that the assessee obtained accommodation entries from M/s Vardhman Traders, a Hawala dealer - HELD THAT - In the present case, the assessee has shown gross profit of 12.06% in the assessment year under consideration and 16.81% in the preceding assessment year. The facts and the issues involved in the present case are identical to the facts and the issues involved in the case of M/s Abhijeet Plastic India Pvt. Ltd. 2020 (8) TMI 62 - ITAT MUMBAI and the coordinate Bench has directed the AO to make addition to the extent of shortfall to make the gross profit to 15%. We set aside the impugned order passed by the CIT (A) and direct the AO to determine the GP of the assessee @ 16.81%, which is the GP of the assessee in previous assessment year holding that the expected GP cannot be less than the GP achieved in the previous assessment year.

Summary

Issues:
- Challenge to addition of genuine purchases as unexplained expenditure
- Charging of interest under sections 234B, 234C, and 234D
- Confirmation of penalty proceeding under section 271(1)(c)

Analysis:
1. The appeal was filed against the CIT(A)'s order confirming the addition of genuine purchases as unexplained expenditure under section 69C of the Income Tax Act, 1961. The AO disallowed the purchases from a 'hawala' dealer, treating them as bogus. The assessee failed to establish the genuineness of the purchases despite submitting supporting documents. The ITAT held that the assessee did not provide convincing evidence, and the addition was confirmed. However, the ITAT noted that a 100% addition was not sustainable, citing precedents directing additions to the extent of shortfall to maintain a minimum gross profit ratio.

2. The challenge against charging interest under sections 234B, 234C, and 234D was also addressed. The ITAT did not delve into this issue, deeming it either consequential or premature, and therefore did not require adjudication.

3. Regarding the initiation of penalty proceedings under section 271(1)(c), the ITAT did not provide a detailed analysis, stating that the remaining grounds were either consequential or premature, hence not necessitating further discussion. The appeal was partly allowed, setting aside the CIT(A)'s order and directing the AO to determine the gross profit at the rate achieved in the previous assessment year, following the principle applied in a similar case. The judgment was pronounced on 21st September 2020 under the Income Tax Appellate Tribunal Rules, 1963.