2015 (2) TMI 1412 - AT - Income Tax

Addition made on account of purchases of paintings from different parties - unproved purchases - HELD THAT - As gone through the statement recorded by the AO from the supplier of paintings. It is evident from the record that assessee has claimed purchase of paintings by issue of account payee cheques. The paintings were also found during the course of search at assessee s premises. AO has made the addition by treating the paintings as bogus purchase merely on the basis of the statement of the seller/supplier of paintings. It is also a matter of record that assessee has not claimed any expenditure in its profit and loss account with respect to cost of paintings. The source of fund from where payment was made is also not in dispute, insofar as payment was made out of credit balance in the bank account. The fact that paintings were found during the course of search indicated that paintings were actually purchased. Accordingly, we do not find any merit for adding the amount of paintings in the assessee s income when the source of funds for making such purchase was not in dispute, nor the physical form of paintings. Under these circumstances, the only inference which can be drawn is that the assessee might have purchased paintings from some other parties. The value paid to the other parties are not known. We direct the AO to ascertain the actual value of paintings in case assessee claims any depreciation on such assets in future. Assessee appeal allowed.

Summary

Issues:
Appeals against CIT(A) order for assessment years 2008-09 regarding addition on account of purchases of paintings from different parties.

Analysis:
The appeals were filed by the assessee against the CIT(A) order for the assessment years 2008-09 concerning the addition made on account of purchases of paintings from various parties. The grievance of the assessee in both years related to the addition made on account of 'unproved purchases' of specific amounts for each assessment year. The issue of bogus purchases of paintings came to light during a search and seizure action under section 132 of the Income Tax Act. The Investigation Wing investigated certain purchases of paintings shown by the assessee group and established them as bogus based on statements from various suppliers. The AO mentioned that statements from individuals denying supplying paintings to the assessee were enclosed with the assessment order. The assessee contended that they had purchased paintings and made payments by cheques, including VAT payment, which were encashed. However, the AO disagreed with the assessee's stand based on statements recorded from the bill providers. The parties from whom the paintings were allegedly purchased denied the transactions during the investigation. The AO treated the purchases as unproved based on these findings.

The CIT(A) confirmed the addition, leading to further appeals by the assessee for both assessment years. The assessee argued that the paintings were purchased by issuing account payee cheques, duly credited to the seller's account, and were physically found during the search. The mere denial by the seller should not be sufficient to treat the purchases as bogus, especially since no expenses related to the paintings were claimed in the return of income. On the other hand, the department contended that the parties from whom the paintings were allegedly purchased had clearly denied the transactions, with one supplier not found at the given address. The department justified treating the purchases as bogus based on these grounds.

Upon considering the contentions and reviewing the orders, the Tribunal noted that the assessee claimed to have purchased the paintings by issuing account payee cheques, and the paintings were found during the search. The AO had treated the paintings as bogus purchases solely based on the suppliers' statements. Since no expenditure was claimed in the profit and loss account for the paintings, and the source of funds for the purchases was not in dispute, the Tribunal found no merit in adding the amount to the assessee's income. The Tribunal directed the AO to ascertain the actual value of the paintings if the assessee claimed any depreciation on such assets in the future. Consequently, both appeals of the assessee were allowed based on the totality of facts and circumstances.