2023 (4) TMI 367 - AT - Income Tax

Additions on account of alleged unaccounted stock of goods and cash - survey action u/s 133A - assessee had voluntarily disclosed an amount - HELD THAT - We note that addition was not solely made based on the statement rather it has made based on the evidence and documents collected during the survey proceedings. AO has stated in assessment order that additions were made based on the documents and evidences obtained by the department during the survey proceedings and not based on the statement. CIT(A) has also discussed the documents and evidences obtained by the department during the survey. Hence, addition is not based solely on the statement. We note that at the time of survey the books of accounts were not completed. At the time of assessment proceedings, the assessee has submitted audited books of accounts - assessee has not submitted the reconciliation statement for stock and cash in hand between audited books of accounts and unaudited books of accounts at survey. The assessing officer has also not asked the assessee to submit reconciliation statement, showing differences and items of differences, between audited books of accounts and unaudited books of accounts at survey, about stock and cash in hand. One more opportunity should be given to the assessee to explain the differences in stock and cash in hand, hence this issue may be remitted back to the file of the assessing officer for limited purpose to examine the reconciliation statement. The assessee is directed to submit before the assessing officer, the reconciliation statement, showing differences and items of differences, between audited books of accounts and unaudited books of accounts at survey, about stock and cash in hand. For statistical purposes, the ground no.1 of the assessee is treated as allowed. Rejection of books of accounts u/s 145(3) - assessee submitted that books of accounts of the assessee were audited and the AO without pointing out any mistake in the audited books of accounts rejected the books of accounts u/s 145(3) - HELD THAT - As during survey unaccounted stock and cash was detected by the survey team which remained to be explained and incorporated in the books coupled with unverifiable purchase renders the books of account incomplete and incapable to show true and correct picture of the relevant year, and hence, the AO was fully justified in rejecting the book of accounts by invoking the provision of section 145(3) of the Act. Hence, we uphold the above findings of ld CIT(A) and ground no.2 of appeal of the assessee is dismissed. Estimation of income - Unaccounted purchase of goods - HELD THAT - As relying on Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT we are of the view that addition should be sustained at the rate of 6% of bogus purchases instead of 12.5% of the bogus purchases. Therefore, we direct the AO to sustain addition @ 6% of bogus purchases. Unexplained cash credit u/s 68 - HELD THAT - Assessee has not submitted the relevant documents, that is, bank statement to prove that loans have been repaid in the subsequent year, besides audited books, if any, were not submitted. Counsel undertakes this responsibility to produce the bank statement and other relevant documents before the Assessing Officer. Therefore, we accept the prayer of the assessee and we are of the view that an opportunity should be given to the assessee to produce the bank statements and other documents to prove, identity, creditworthiness and genuineness of the cash credit. Therefore, we set aside the order of CIT(A) and remit this issue back to the file of the AO to adjudicate the issue in accordance with law. Ground allowed for statistical purposes.

Issues Involved:
1. Addition on account of alleged unaccounted stock and cash.
2. Rejection of books of accounts under section 145(3) of the Income Tax Act.
3. Addition on account of alleged unaccounted purchases.
4. Addition on account of unexplained cash credits under section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition on Account of Alleged Unaccounted Stock and Cash:
The assessee challenged the addition of Rs.1,20,99,549/- and Rs.4,06,485/- for unaccounted stock and cash. The Assessing Officer (AO) based this on a survey conducted under section 133A, which found unaccounted stock and cash. The assessee retracted the initial statement, claiming it was made under coercion. However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the retraction as an afterthought, given it was made after 822 days. The Tribunal noted that the addition was based on primary evidence collected during the survey and not solely on the retracted statement. The Tribunal remitted the issue back to the AO for a limited purpose to examine the reconciliation statement between audited and unaudited books, allowing the assessee another opportunity to explain the differences.

2. Rejection of Books of Accounts under Section 145(3):
The AO rejected the assessee's books of accounts under section 145(3) due to discrepancies found during the survey, including unaccounted stock and cash, and unverifiable purchases. The CIT(A) upheld this rejection, noting that the books were incomplete and did not reflect true business affairs. The Tribunal agreed with the CIT(A), emphasizing that the detection of unaccounted stock and cash justified the rejection of the books of accounts.

3. Addition on Account of Alleged Unaccounted Purchases:
The AO disallowed Rs.4,36,12,234/- for unverifiable purchases, later corrected by the CIT(A) to Rs.4,34,11,380/-. The CIT(A) restricted the disallowance to 12.5% of these purchases, amounting to Rs.54,26,422/-, citing that while the purchases were unverifiable, they were not entirely bogus. The Tribunal, referencing a precedent from the Co-ordinate Bench of ITAT Surat in a similar case, further reduced the addition to 6% of the unverifiable purchases, aligning with the principle that only the profit element embedded in such purchases should be taxed.

4. Addition on Account of Unexplained Cash Credits under Section 68:
The assessee contested the addition of Rs.19,46,000/- for unexplained cash credits, claiming these loans were repaid in subsequent years. However, the necessary bank statements and other documents were not provided. The Tribunal remitted this issue back to the AO, directing the assessee to submit the relevant documents to establish the identity, creditworthiness, and genuineness of the cash credits.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, remitting specific issues back to the AO for further examination and verification, while upholding the rejection of the books of accounts and modifying the addition for unverifiable purchases.

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