2009 (1) TMI 347 - AT - Income Tax

Disallowance on Income From Undisclosed Sources - ingenuine/unproved purchases - unexplained investment - bogus purchases of rubbles - Manufacture and Sale of crushed stone aggregates - difference of opinion between the two members - whether the CIT(Appeals) be upheld or should the issue relating to genuineness of the purchases and consequential addition be restored back to the file of Assessing Officer with the directions as contained in paragraph No. 9 of the draft order of Learned AM - HELD THAT - Learned AM - No reasons have been adduced before us, explaining fall in GP rate by more than 100%. The taxpayer claimed before us and the lower authorities that payments were made by the account payee cheques. But no evidence has been brought to our notice as to whom the cheques were handed over by the taxpayer. Ld. AO or the CIT(A) did not try to ascertain as to who has deposited these cheques in the bank accounts and who was that person who withdrew cash from bank account of the aforesaid five parties. All the five parties had account in the same bank namely Sevalia Urban Co-operative bank, Sevalia. Payments were made to these parties on the same dates as indicated already. AO found that a specific person had withdrawn cash from the bank account of these parties. But he did not make further inquiries in order to ascertain his identity or whereabouts. Therefore, In the interest of justice and fair play, matter is restored to the file of the AO with the directions to; i) make necessary further inquiries from the (a) concerned bank authorities or otherwise in respect of person making withdrawals in cash and (b) Sales Tax authorities, in respect of genuineness of transactions in purchase; and ii) allow another opportunity to the taxpayer to (a) furnish the actual working of GP on account of trading and manufacturing of rubble, and kapchi grit etc. and its impact on the profitability of the year under consideration vis- -vis preceding years, in the light of books of accounts and other records claimed to have been maintained by the taxpayer; and (b) to produce proprietors of the five firms in support of genuineness of the purchases. Thereafter the issue may be decided in accordance with law and facts available on record and of course, after affording reasonable opportunity to the taxpayer to produce the relevant books of accounts and other records/evidence and in the light of decisions relied upon on either side. Thus the ground of appeal raised by the Revenue is disposed of accordingly. Learned JM - I am of the opinion that the Tribunal has power to remand the issue as aforesaid, but in no case has the power to advise or direct any of the Revenue Authority to improve upon their case and it is so because, the legislature has rightly made separate provisions for correcting any error or mistake or lapse on the part of the Assessing Officer by enacting the provisions of Section 263 of the Act, according to which the CIT/the Chief CIT has been given powers to revise any order of the Assessing Officer if the same is found to be erroneous and prejudicial to the interest of the Revenue. The legislature has further made a provision for correcting the mistake committed by the Assessing Officer by keeping the CIT(Appeals)'s power co-terminous with the powers of the Assessing Officer which means that the CIT(Appeals) has powers to direct the Assessing Officer to make good of its mistakes. So far as powers of Tribunal are concerned, We have no hesitation to hold that the Tribunal has no power to allow an opportunity to the Assessing Officer to improve upon his case against the assessee. So far as present case is concerned, admittedly, the Assessing Officer did not carry out the enquiries as have been directed, in the draft order of my Learned Brother and, therefore, to remand the issue back to the file of Assessing Officer with the aforesaid directions, amounts to allowing an opportunity to the Assessing Officer to improve upon his case which may prove to the detrimental to the interest of the Assessee, which is not permissible under the law. It is well said that if the Assessing Officer fails to make proper enquiry, then the Tribunal or Court should not allow the Sword of Damocles to remain hanging over the neck of the assessee by allowing the Assessing Officer a further opportunity to improve upon his case. Thus, uphold the order of the CIT(Appeals). Third Member Order - The Tribunal discussed the proposition that if there were no purchases, then how there could be any sale or closing stock and since, the revenue always accepts the sales and the closing stock, non-acceptance of the purchases, which are duly accounted for in the books was held could not be justified and the credit for such purchase has to be given. It observed that addition, in such case, can be made only - (i) if it were established that sale of goods so purchased (if sold) is not accounted for in the books of account, or (ii) the goods so purchased are not accounted for in the closing stock (if not sold) and not otherwise except where there is an allegation of suppression of sale price or suppression of value of closing stock and for that purpose, the onus is on the Revenue to establish that suppression. It is also observed that there is another way of making addition when the Revenue is able to establish that the assessee has inflated the purchases either by way of value or by way of quantity. It observed that so far as quantity is concerned, the onus is on the assessee to establish that whatever quantity purchased, was either sold or was available in closing stock but so far as inflation of purchase price is concerned the onus is on the Revenue to establish this fact. Another way of making addition, it stated, could be if Revenue succeeds in establishing that the purchase the phrase price paid by the assessee through its books of account has come back to the assessee and here again, the onus is on the Revenue to establish such a fact. There cannot be any addition either on account of undisclosed investment or on account of undisclosed sales or undisclosed profit on the ground that some purchases are considered to be bogus or ingenuine only for want of availability of the seller. These observations of the Tribunal are also contrary to the proposition of law as laid down in the Law Medica 2001 (3) TMI 68 - DELHI HIGH COURT and Shri Ganesh Rice Mills 2005 (3) TMI 95 - ALLAHABAD HIGH COURT . therefore no much reliance can be had to this case. Thus, the submission to delete the disallowance made on account of bogus claim of the assessee cannot be accepted on the mere ground that the production/sales could not have been possible in absence of purchases. This is besides the point of considering the admissibility of purchases as an expenditure. In my opinion, the order of the CIT(A) deleting the addition, having been made on account of so called ingenuine/unproved purchases and consequential addition can be restored back to the Assessing Officer. However before parting with the case it may be observed that the Tribunal could have restrained itself to advise the manner in which it be reexamined and it could be left to the wisdom of the parties as to how the case should be placed and reexamined and what material be brought on record to prove the genuineness of the purchases. The matter may now be placed before the Bench to decide the appeal in accordance with law.

Summary

Issues Involved:

1. Deletion of addition on account of bogus purchases.
2. Onus of proving the genuineness of purchases.
3. Validity of restoring the issue back to the Assessing Officer for further inquiry.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:

The Revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 68,55,330/- made by the Assessing Officer (AO) on account of bogus purchases. The AO concluded that the taxpayer failed to prove the genuineness of the purchases from five parties, as the addresses provided were residential or untraceable, and the payments were withdrawn in cash by a particular person shortly after being credited. The CIT(A) deleted the addition, reasoning that the taxpayer's sales were not disputed, and the quantitative details of purchases, production, and sales were consistent. Payments were made through account payee cheques, and there was no evidence that the withdrawals were received by the taxpayer.

2. Onus of Proving the Genuineness of Purchases:

The AO argued that the taxpayer did not discharge the onus of proving the genuineness of the purchases. Despite providing initial addresses and confirmations for two parties, the taxpayer did not produce the parties or their current addresses when the initial addresses were found invalid. The AO's inquiries revealed discrepancies in addresses and signatures, and the taxpayer did not provide explanations for the steep fall in the gross profit rate from 17.67% to 8.34%. The CIT(A) accepted the taxpayer's explanations without independent verification, which was contested by the Revenue.

3. Validity of Restoring the Issue Back to the Assessing Officer for Further Inquiry:

The Accountant Member suggested restoring the issue to the AO for further inquiries, including verifying the person withdrawing cash and consulting Sales Tax authorities. The Judicial Member disagreed, citing the decision in Shri Tolaram B. Sharma's case, where similar additions were deleted. The Judicial Member also argued that the Tribunal should not allow the AO another opportunity to improve upon their case, as it would be detrimental to the taxpayer who had already been granted relief by the CIT(A).

Third Member's Decision:

The Third Member resolved the difference by agreeing with the Accountant Member. The Tribunal has the power to remand a case for further inquiry if the material on record is insufficient to decide the issue. The Third Member emphasized that the initial burden lies on the taxpayer to prove the genuineness of the purchases, and the AO should be allowed to conduct further inquiries to verify the transactions. The case was thus restored to the AO for fresh examination, with directions to verify the person withdrawing cash, consult Sales Tax authorities, and allow the taxpayer to furnish additional evidence to support the genuineness of the purchases.

Conclusion:

The appeal was treated as allowed for statistical purposes, with the issue being remanded to the AO for further inquiry and verification. The Tribunal emphasized the importance of thorough investigation and verification of the genuineness of transactions before making any additions or deletions.