2023 (7) TMI 162 - AT - Income Tax

Assessment u/s 153A - Bogus purchases - CIT(A) restricted the disallowance to the extent of 5% - incriminating material found in search or not? - HELD THAT - The only incriminating evidence claimed the searched party relates to the inwards entry on the register maintained at the gate of factory for the period of August 2013 to February 2014 only. The assessing officer nowhere mentioned in the assessment orders passed under section 153A/143(3) for AY 201-11 2011-12 about any incriminating material found during search action on 18.02.2014. Discrepancy, if any in the inward register found at the gate for the period 2013 to 2014 only. Now it is settled position under law that no addition can be made in the unabated assessment u/s 153A in absence of incriminating material as has been held in Saumya Construction (P) limited 2016 (7) TMI 911 - GUJARAT HIGH COURT and .Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT Decided in favour of assessee. Rejection of books of accounts - Estimation of income - bogus purchases - HELD THAT - Mere certain discrepancy at the entry gate cannot be a basis of rejection of entire books results for three assessment years, when no other incriminating evidence was find at the time of search. Thus we do not approve the rejection of books of account. The discloser made by director of the assessee has been honoured in its true spirit. The assessee disclosed Rs. 1.00 crore each for AY 2012- 13 2013-14 and Rs. 13.00 Crore for AY 2014-15 and if further addition by approving the rejection of books of account is sustained, the net profit would be unrealistic. Another reason to disapprove the action of AO in rejection of books result of assessee as same assessing officer completed the assessment of one of the purchase party u/s 153A r.w.s 143(3) and all their sale and purchase are accepted as genuine and no variation / addition in their return of income was made, thereby accepted their return income vide assessment order dated 18/11/2015. Thus addition sustained by ld CIT(A) to the extent of 5% of the impugned purchases will not survive. Assessee appeal allowed.

Summary

Issues Involved:
1. Rejection of books of account under Section 145(3) r.w.s. 144 of the I.T. Act.
2. Additions made under Section 153A without new incriminating material.
3. Partial confirmation of additions on account of alleged bogus purchases.

Summary:

Issue 1: Rejection of Books of Account

The assessee challenged the rejection of its books of account by the Assessing Officer (AO) under Section 145(3) of the Income Tax Act, 1961. The AO noted discrepancies in the inward register for purchases from six companies and suspected the genuineness of these purchases. The AO rejected the books of account and estimated an addition of 18% on the alleged bogus purchases. The CIT(A) upheld the rejection of books but reduced the addition to 5%. The Tribunal found that the AO did not provide sufficient grounds for rejecting the books, noting that the sales were not disputed, proper stock registers were maintained, and no discrepancies were found during the search. The Tribunal disapproved the rejection of the books of account and allowed the assessee's appeal on this issue.

Issue 2: Additions under Section 153A

The assessee argued that no incriminating material was found during the search for the assessment years 2010-11 and 2011-12, which were already completed. The Tribunal agreed, citing the settled law that no addition can be made in unabated assessments under Section 153A in the absence of incriminating material. The Tribunal referred to the jurisdictional High Court's decision in PCIT Vs. Saumya Construction (P) Ltd. and the Supreme Court's decision in PCIT Vs. Abhisar Buildwell P Ltd., setting aside the additions for these years.

Issue 3: Partial Confirmation of Additions

For the assessment years 2012-13 to 2014-15, the CIT(A) had reduced the addition on alleged bogus purchases from 18% to 5%. The Tribunal noted that the AO did not dispute the sales, and the purchases were recorded in the books, with payments made through account payee cheques. The Tribunal found no basis for the AO's estimation and disallowed the addition. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal on this issue.

Conclusion:

The Tribunal allowed the assessee's appeals for all the assessment years and dismissed the revenue's appeals, concluding that the rejection of books of account and the additions made under Section 153A were not justified. The Tribunal emphasized the need for incriminating material to make additions in unabated assessments and found the AO's basis for rejecting the books and estimating additions to be insufficient.