2023 (10) TMI 770 - AT - Income Tax

Bogus purchases - onus to prove - reliance of the statement of partners and other persons - retracted statement - DR pointed out that the onus was upon the assessee to produce the supplier to support the bona fides which has not been done - contention of the assessee that both the parties from whom the assessee has made purchases are existing parties and such parties have independently filed their confirmation with regard to the supplies made by such parties to the assessee and mere non attendance per se after a lapse of time could not be viewed adversely - HELD THAT - As regard to the nature of business, i.e. trade in bullion, where stocks are identifiable and the price is also governed by market forces with little scope for manipulations; the purchases duly accounted for; the transaction of only 2 parties doubted despite extensive enquiry on 122 parties etc. we find potency in the plea of bonafides. There can be variety of reasons for non-attendance by unrelated third parties and it is not always within the domain of assessee to enforce attendance of third parties. Nothing adverse need to be imputed in such circumstances, more so, where the payments have been made through banking channel. We see a greater degree of plausibility in the version of the assessee. Action of the CIT(A) is set aside and the additions / disallowances made on this count are cancelled. Unexplained money u/s 69A - Unaccounted cash found in course of search and seizure at the branch office of business premises of the assessee-firm u/s 132 - HELD THAT - Once the existence of cash sales are reckoned, the source of cash found at the time of premises of the assessee stands recognized. The mismatch appears to have resulted owing to partial coverage of all premises u/s 132 - assessee cannot be blamed for towering failure of the search team to keep the main office out of purview of search action. It is rather inexplicable that only a branch office was covered under search and a statement of partner was regarded as gospel truth despite visible lack of business activities, attendant work force, books, records etc. The claim of assessee that the statement of partners are neither voluntary nor reliable and is thus bereft of any probative value, is not without any substance as noted in the preceding paragraphs. The benefit of doubt, in the peculiar circumstances, thus need to go in favour of the subject assessee. The assessee cannot be held accountable for the lapses or remissness on the part of the Revenue Authorities. The explanation offered by the assessee in the course of the post search investigation and thereafter in the assessment proceedings that books of accounts were kept at the main office of the assessee appears reasonable and consistent having regard to the multiple facts such as the assessment in the past on the basis of books, the accounts being subject to tax audit under Section 44AB of the Act, VAT returns etc. The reduction in the stock on account of such sales also vouches the claim of the assessee. Action of the revenue authorities to make additions towards unexplained cash sales under s. 69A is without any sound basis and hence cannot be countenanced in law. Unexplained bullion stock found at the branch premises of the assessee - HELD THAT - As statement of the partners stood discredited and rendered unreliable by the chain of events such as recorded in odd hours and without any books and without taking cognizance of bank entries; retraction of such statement without much delay, production of books before investigation team, no cross examination of retraction, gap of about 45 days in retraction attributable to statement recorded not made available despite request on the very next of search etc. The stock found being out of stock in hand as reflected in stock records, we thus hardly see any justification in the enhancement action of the CIT(A). Also simultaneously notice a paradoxical situation that while, on one hand, the revenue seeks to question the propriety of cash sales and negation of its existence, which if taken at face value, such exclusion of cash sales would bear reciprocal effect on the stock in hand and such positioning would rather enhance the stock in hand in tandem. The allegation of stock being unexplained thus somewhat militates against logic and appears to be based on misplaced exposition of facts. Without delving further, in totality, the case made out by the CIT(A) towards enhancement is bereft of merit and thus cannot be countenanced. Thus enhancement action of the CIT(A) is quite cryptic and mere reiteration of the observations such as no details of purchases, absence of books, etc. Assessee appeal allowed.

Summary

Issues Involved:
1. Addition on account of purchases treated as bogus.
2. Addition on account of unexplained cash.
3. Enhancement of income on account of unrecorded stock.

Summary:

Issue 1: Addition on account of purchases treated as bogus
The assessee challenged the addition of Rs. 11,21,920/- for purchases treated as bogus. The Assessing Officer (AO) disallowed these purchases due to non-response from suppliers to notices under Section 133(6). The CIT(A) upheld the AO's decision, citing the assessee's failure to discharge the onus of proving the genuineness of purchases. The Tribunal found that the assessee had provided confirmations and payments through banking channels, and the transactions were recorded in the stock register. Given the nature of the business and the extensive compliance by other suppliers, the Tribunal ruled in favor of the assessee, setting aside the CIT(A)'s action and canceling the additions.

Issue 2: Addition on account of unexplained cash
The AO added Rs. 3 crore as unexplained cash found during a search, rejecting the assessee's explanation that it was from cash sales. The CIT(A) upheld this addition, relying on the partners' statements during the search. The Tribunal noted that the main office, where books were maintained, was not searched. The books, produced post-search, showed a cash balance of Rs. 3.74 crore, explaining the cash found. The Tribunal found the partners' statements unreliable due to alleged duress and lack of cross-examination post-retraction. The Tribunal ruled that the cash sales were genuine, and the cash found was sufficiently explained, thus deleting the addition.

Issue 3: Enhancement of income on account of unrecorded stock
The CIT(A) enhanced the income by Rs. 3,13,44,002/- for unrecorded stock found during the search, relying on the partners' statements. The Tribunal noted that the stock was recorded in the books maintained at the main office and the AO had not rejected these books. The Tribunal found the partners' statements unreliable and noted that the stock found matched the stock records. The Tribunal also highlighted the paradox in the CIT(A)'s stance, questioning cash sales while treating the stock as unaccounted. The Tribunal set aside the CIT(A)'s enhancement action and deleted the addition.

Conclusion:
The Tribunal allowed the appeal, ruling in favor of the assessee on all three issues, setting aside the additions and enhancement made by the CIT(A).