2024 (6) TMI 969 - AT - Income Tax

Quantification of profit element qua the unsubstantiated purchases - Disallowance of bogus purchases - HELD THAT - The matter is restored to the file of the A.O with a direction to confine the addition with respect to the unsubstantiated purchases to the extent of the difference/variance between the rate of profit element on the genuine purchases vis- -vis unsubstantiated purchases. Thus, the Ground of appeal raised by the assessee is allowed for statistical purposes. Disallowance of interest on loan - HELD THAT - As there are certain justifiable reasons, due to which, the assessee before the lower authorities could not substantiate his claim that the personal loans raised by him were exclusively used for the purpose of business, therefore, the additional evidence a/w. the chart filed by him is in all fairness admitted. At the same time, I am of the view that as the aforesaid chart filed by the assessee to substantiate his claim that the personal loans raised by him were utilized wholly and exclusively for the purpose of business had been filed for the first time in the course of the proceedings before me, therefore, the matter in all fairness requires to be restored to the file of the A.O who is directed to re-adjudicate the issue after considering the aforesaid claim of the assessee in the backdrop of the additional documentary evidence filed by him. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee. Addition u/s.68 - AO while framing the assessment observed that the assessee had raised fresh unsecured loans from three parties - HELD THAT - As assessee had in his application seeking admission of certain fresh documents as additional evidence placed on record confirmations of the lenders, copy of the returns of income, computation of income, bank statements, balance sheets of the respective lenders - As observed by me hereinabove, as there are certain justifiable reasons for the assessee in not filing the aforementioned documents in the course of the proceedings before the lower authorities, therefore, the same in all fairness and in the interest of justice are admitted. As the aforementioned fresh documents were not available before the lower authorities and had been filed by the assessee before us for the first time, therefore, the matter in all fairness requires to be restored to the file of the A.O who is directed to re-adjudicate the issue after considering the aforesaid claim of the assessee in the backdrop of the aforesaid fresh documents filed by him. Ground raised by the assessee is allowed for statistical purposes.

Issues Involved:
1. Disallowance of bogus purchases.
2. Disallowance of interest on loans.
3. Addition u/s. 68 of the Act for unexplained cash credits.
4. Procedural issues regarding the opportunity of being heard.

Summary:

(A) Disallowance of bogus purchases: Rs.8,85,000/-

The assessee failed to substantiate the authenticity of purchases amounting to Rs.35,40,000/- from four parties. Consequently, the A.O treated these as bogus purchases and made a disallowance of 25% of the purchase expenditure, resulting in an addition of Rs.8,85,000/-. The assessee argued that the addition was exorbitant and cited the judgment of the Hon'ble High Court of Bombay in Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, which restricts the addition to the profit element difference between genuine and bogus purchases. The Tribunal restored the matter to the A.O to confine the addition to this difference.

(B) Disallowance of interest on loan: Rs.4,65,797/-

The A.O disallowed the assessee's claim for deduction of interest on loans amounting to Rs.4,65,797/- as the assessee failed to substantiate that these loans were used for business purposes. The CIT(A) upheld this disallowance. The assessee contended that no specific query was raised by the A.O, and he was unaware of the proceedings before the CIT(A) due to opting out of e-mail communications. The Tribunal admitted additional evidence and restored the matter to the A.O for re-adjudication after considering the new evidence.

(C) Addition u/s.68 of the Act: Rs.11,97,382/-

The A.O added Rs.11,97,382/- as unexplained cash credits u/s. 68 of the Act, as the assessee failed to substantiate the identity, creditworthiness of the lenders, and the genuineness of the transactions. The Tribunal admitted additional evidence, including confirmations and financial documents of the lenders, and restored the matter to the A.O for fresh adjudication.

Procedural Issues:

The assessee claimed that no reasonable opportunity of being heard was provided as no notice u/s. 250 was issued manually. Grounds of appeal Nos. 2 & 3 were dismissed as not pressed. Grounds of appeal Nos. 1 and 7 were dismissed as general in nature.

Conclusion:

The appeal of the assessee is partly allowed for statistical purposes, with directions for fresh adjudication on specific issues by the A.O. Order pronounced in open court on 11th January, 2024.

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