2003 (9) TMI 326 - AT - Income Tax

Addition made for fictitious purchases - Purchases are made from unregistered dealers in cash - No corresponding proved purchases were bogus - HELD THAT - The AO had admitted the sales and other expenses incurred on the material and also have accepted the sale of materials. Hence, there was no justification to reject the claim of purchases for want of proper vouchers or non-production of persons who sold the same. We agree with the contention of the learned AR that the unregistered dealer normally do not stay at one place and it becomes very difficult to produce them after a gap of years. From the record, we find that the AO could not prove the wild allegation that these purchases were bogus or the source of payment was unexplained. When the purchases are made from unregistered dealers in cash and in other words the purchases are unvouched, these can be considered as a defect in the maintenance of accounts and only them G.P. rate can be applied u/s145 of the IT Act. After peeping into the past history of the case or by quoting comparable cases, we do not find any infirmity in the order of the learned CIT(A). Therefore, the order of the learned CIT(A) is upheld. In the result, the appeal filed by the Revenue is dismissed.

Summary

Issues involved: Appeal against CIT(A) order for assessment year 1989-90.

Deletion of addition of fictitious purchases:
The AO made an addition of Rs. 1,31,774 for fictitious purchases due to lack of proper documentation and failure to prove genuineness. However, the CIT(A) deleted the addition as the AO accepted the sales against these purchases, indicating a discrepancy in the AO's reasoning. The authorized representative argued that expenses related to the purchased items were genuine, and the AO's allegations were unfounded. The ITAT upheld the CIT(A)'s decision, stating that unregistered dealer purchases can lead to accounting defects but do not justify disallowing the entire claim without evidence of fraud or unexplained sources of payment.

Setting aside of unexplained cash credits addition:
The CIT(A) set aside the addition of Rs. 24,000 for unexplained cash credits, directing a reassessment with proper opportunity for the assessee to present their case. Citing a precedent from the Hon'ble Rajasthan High Court, the ITAT declined to interfere with the CIT(A)'s order, ultimately dismissing the Revenue's appeal.