2021 (8) TMI 916 - AT - Income Tax

Assessment u/s 153A - Bogus purchases - suppression of the gross profit by obtaining bogus purchase bills by the assessee - HELD THAT - Only addition made by the learned assessing officer is with respect to the gross profit rates of the assessee as per books of accounts and the gross profit rates derived on the basis of instances found from tally software during the course of search. The learned assessing officer has not disturbed the book results but has made an addition of the gross profit, which the assessee should have earned according to him based on the incriminating documents found for subsequent years for the impugned years. CIT A as also not deleted the addition on that basis but for the reason that the comparison made by the learned assessing officer of different material of different lots sold at different time. DR has agreed that that the learned assessing officer has computed the gross profit by taking transactions of the nearby dates. However, it is not denied that the learned assessing officer has taken the highest rate of sales as well as lowest rates of purchases for computing the additional gross profit that should have been earned by the assessee. The assessee has produced the copies of the paper book, which are placed before the learned CIT A wherein he has verified the details of the material sold, quantity sold with respect to the various bills placed in those paper books and found that the comparison of the gross profit made by the learned assessing officer is not comparable. Another argument of the learned departmental representative is that the subsequent year s acceptance of the book results by the learned assessing officer cannot help the case of the assessee in deleting the addition in those years, which are in appeal. We find that the subsequent years assessments are also completed u/s 143 (3) of the act and no addition has been made by the learned assessing officer. Admittedly in subsequent years there was no seized material available and the learned assessing officer has not extrapolated the gross profit in subsequent years, which he did for the impugned years in the appeal, however the acceptance of the subsequent years gross profit shows that the books of accounts prepared by the assessee are acceptable. The gross profit ratio of the subsequent years is also not of much difference compared to the years in this appeal. In view of this we do not find any infirmity in the order of the learned CIT A in deleting the addition on account of suppressed gross profit, which was not based on any incriminating material found during the course of search for the respective years and because of erroneous comparison made by the learned assessing officer. - Decided against revenue.

Issues Involved:

1. Legality of the CIT(A)'s decision in light of the Delhi High Court's order.
2. Validity of the assessment order and enforcement of demands.
3. Interpretation of the Delhi High Court's judgment regarding assessment proceedings.
4. Justification of the gross profit addition based on seized/incriminating documents.
5. Justification of the gross profit rate enhancement by the AO.
6. Rejection of trading results and the addition of gross profit by the AO.
7. Allegations of inflating purchases through bogus purchase bills.
8. Statements and findings from the search and seizure operations.

Issue-wise Detailed Analysis:

1. Legality of the CIT(A)'s Decision:
The CIT(A) deleted the additions made by the AO, which were based on an enhanced gross profit rate. The AO argued that the CIT(A) erred in deciding the appeal without considering the Delhi High Court's order dated 14.05.2013. The AO contended that the CIT(A)'s decision was against the High Court's directive that the assessment proceeding could continue but would not be enforced until further orders.

2. Validity of the Assessment Order and Enforcement of Demands:
The AO's appeal raised concerns about the enforceability of the assessment order, referencing the High Court's statement that the assessment could proceed but not be enforced. The CIT(A) was accused of misinterpreting this directive and deciding on an assessment order that was rendered ineffective by the High Court.

3. Interpretation of the Delhi High Court's Judgment:
The AO argued that the CIT(A) wrongly interpreted the High Court's judgment, which allowed only the continuation of assessment proceedings and not subsequent appellate proceedings. The CIT(A) decided the appeal on an assessment order still sub-judice before the High Court, which the AO claimed was incorrect.

4. Justification of the Gross Profit Addition Based on Seized/Incriminating Documents:
The AO made additions based on seized documents indicating bogus purchases and cash transactions. The CIT(A) held that no incriminating material was found during the search to doubt the gross profit rate declared by the assessee. The AO argued that the seized documents and statements from entry operators justified the additions.

5. Justification of the Gross Profit Rate Enhancement by the AO:
The AO enhanced the gross profit rate to 24.38% based on documents found during the search, which allegedly showed higher gross profits than those declared by the assessee. The CIT(A) found no justification for this enhancement, noting that the AO compared purchases of scrap with sales of finished goods and applied a uniform gross profit rate across different items and years without proper justification.

6. Rejection of Trading Results and the Addition of Gross Profit by the AO:
The AO rejected the trading results of the assessee, citing unreliable books of accounts and the failure to produce stock registers and purchase vouchers. The CIT(A) disagreed, stating that the AO's comparison of sales and purchases was flawed and that the assessee's books of accounts were audited and maintained with proper quantitative details.

7. Allegations of Inflating Purchases Through Bogus Purchase Bills:
The AO alleged that the assessee inflated purchases through bogus purchase bills from accommodation entry providers. The CIT(A) noted that the AO's findings were based on statements and documents from the search, but no incriminating material specifically related to the assessment years in question was found.

8. Statements and Findings from the Search and Seizure Operations:
The AO relied on statements from entry operators and seized documents to justify the additions. The CIT(A) held that these statements alone could not constitute incriminating material without corroborative evidence. The ITAT upheld this view, citing legal precedents that statements without corroborative material cannot justify additions.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the additions made by the AO. It was determined that the AO's reliance on statements and documents from the search was insufficient to justify the additions without corroborative material specifically related to the assessment years in question. The ITAT emphasized that only assessments pending on the date of the search could be revisited, and any additions must be based on incriminating material found during the search. The appeals filed by the AO were dismissed.

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