2024 (10) TMI 695 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) restricting the addition to 10% as AO applied 12.5% - HELD THAT - The assessment was re-opened in assessee's case based on information received from DGIT (Inv.) with regard to certain alleged bogus purchases. Assessee has not fully discharged its onus of proving the genuineness of the purchases. Even before the CIT(A) the assessee did not furnish any further details except the purchase bills and bank statements as submitted before the AO. Considering the facts of the present case in our considered view the AO has correctly applied the G.P. percentage of 12.5% on the impugned transactions and to this extent the order of the CIT(A) is set aside. The ground raised by the Revenue in this regard is allowed. Addition u/s 68 - unexplained cash deposits - CIT(A) deleted addition - HELD THAT - From the perusal of the findings of the AO with regard to the basis on which the addition is made it is clear that the AO has not recorded any adverse finding with regard to the documents submitted by the assessee explaining the source of cash deposits. The AO has made addition only for the reason that the assessee has not explained the purpose of which cash was withdrawn and also that when other modes of payment are available why the assessee needed cash. CIT(A) has given relief to the assessee after considering this fact and therefore we see no infirmity in the order of the CIT(A) deleting the addition made under section 68 - Decided against revenue.

Summary

Issues Involved:

1. Legitimacy of restricting the addition on account of bogus purchases to 10% of total purchases.
2. Failure of the assessee to produce parties for verification.
3. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash deposits.

Issue-wise Detailed Analysis:

1. Bogus Purchases:

The primary issue was whether the CIT(A) was correct in restricting the addition made on account of bogus purchases to 10% of total purchases. The Revenue argued that the Sales Tax Department had identified certain parties as hawala traders, providing accommodation entries without actual supply of goods, and the assessee was a beneficiary of such entries. The AO had initially applied a 12.5% Gross Profit (G.P.) rate on the impugned transactions, suspecting the assessee of inflating purchases to reduce taxable income. The CIT(A), however, reduced this rate to 10%, which the Revenue contested, arguing that the assessee failed to prove the genuineness of the purchases, as no transportation receipts, stock registers, or other supporting documents were provided. The Tribunal concluded that the AO correctly applied the 12.5% G.P. rate, setting aside the CIT(A)'s reduction to 10%, thereby allowing the Revenue's ground on this issue.

2. Verification of Parties:

The Revenue contended that the assessee failed to produce the parties for verification despite opportunities provided by the AO. The AO noted that the assessee did not substantiate the transportation or utilization of the goods purportedly purchased, nor did they produce relevant records or stock registers. The Tribunal, in its analysis, considered the lack of evidence and documentation provided by the assessee, which supported the AO's stance that the purchases were non-genuine. This issue was inherently linked to the first issue regarding the genuineness of purchases and the application of the G.P. rate.

3. Unexplained Cash Deposits under Section 68:

The third issue was the deletion of the addition made by the AO under Section 68 for unexplained cash deposits amounting to Rs. 30,98,500/-. The AO had added this amount as unexplained credits, citing that the assessee failed to explain the sources of these deposits. The assessee argued that these deposits were from previous cash withdrawals, supported by bank statements. The CIT(A) accepted the assessee's explanation, noting that the AO did not bring any evidence of alternative sources of income or question the authenticity of the bank statements showing withdrawals. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no adverse findings or evidence from the AO to contradict the assessee's explanation. Thus, the Tribunal dismissed the Revenue's ground on this issue.

Conclusion:

The Tribunal partly allowed the Revenue's appeal by upholding the AO's application of a 12.5% G.P. rate on bogus purchases but dismissed the appeal regarding the deletion of the addition under Section 68 for unexplained cash deposits. The order was pronounced in open court on 24-09-2024.