2025 (2) TMI 1027 - AT - Income Tax

Bogus purchases - AO made addition after excluding the GST amount from the total purchases - HELD THAT - Sales of the assessee have not been disputed and the books of account have also not been rejected. Assessing Officer in assessee s own case for the four preceding assessment years has adopted the profit rate of 5% on account of bogus / untested purchases therefore we are of the considered opinion that adoption of the same profit rate of 5% on account of untested / bogus purchases of Rs. 13, 80, 63, 994/- will meet the ends of justice. We therefore set aside the order of the Ld. CIT(A) and direct the AO to adopt the profit rate of 5% on the total purchases of Rs. 13, 80, 63, 994/- and restrict the addition to Rs. 69, 03, 200/-. The order of the Ld. CIT(A) is accordingly modified. We hold and direct accordingly. The grounds raised by the Revenue are accordingly partly allowed. Unexplained money - CIT(A) deleted addition - HELD THAT - Admittedly the documents were found from the premises of Director of the assessee company during the course of search action at his residential premises. In his statement recorded u/s 132(4) of the Act he has owned up the transactions as belonging to him in his personal capacity and the cheque was wrongly issued by the party in the name of Metarolls Ispat Pvt. Ltd. Therefore once the person from whose residence the documents were seized and in his statement recorded u/s 132(4) of the Act he has owned up the transactions therefore the AO in our opinion was not justified in making the addition in the hands of the assessee company. Amount received as distribution of amounts received in the form of flat against the unaccounted transaction - HELD THAT - Since we have directed the AO to adopt the profit rate of 5% on account of such bogus / untested purchases therefore we are of the considered opinion that adoption of the same percentage of profit i.e. 5% on such unaccounted sale of Rs. 17, 42, 000/- should be added to the total income of the assessee which in the instant case comes to Rs. 87, 100/-. When the documents found containing certain transactions the Ld. CIT(A) was not justified in deleting the addition stating that due to lack of evidence and in absence of any corroborative evidence addition is not sustainable. We set aside the order of the Ld. CIT(A) and direct the AO to adopt the profit rate of 5% on the unaccounted turnover of Rs. 17, 42, 000/- which comes to Rs. 87, 100/-. The order of the Ld. CIT(A) is accordingly modified and the ground raised on this issue by the Revenue is partly allowed. Unexplained money - CIT(A) deleted addition on the basis of subsequent retraction - HELD THAT - A perusal of the seized documents shows that two entries were found where it is mentioned as 6kg and 7kg. Although the AO has taken such entries as Rs. 6 lakh and Rs. 7 lakh the assessee in its clarification has mentioned the same to be of Rs. 6, 000/- and Rs. 7, 000/- respectively. It is also not understood as to why the same should not be read as Rs. 60, 000/- and Rs. 70, 000/- or Rs. 6 lakh and Rs. 7 lakh. Since the seized documents contain the entries of 6kg and 7kg and it is not sure as to whether it is Rs. 60, 000/- and Rs. 70, 000/- or Rs. 6 lakh and Rs. 7 lakh and since Shri Ashish Bhala subsequently retracted from his statement by filing an affidavit before the DDIT(Inv) and since no other corroborative material was found therefore considering the totality of the facts of the case addition of Rs. 60, 000/- and Rs. 70, 000/- both totaling to Rs. 1, 30, 000/- under the facts and circumstances of the case will meet the ends of justice. The order of the Ld. CIT(A) on this issue is accordingly modified and the ground raised by the Revenue on this issue is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core legal issues in the appeal by the Revenue:

(a) Whether the CIT(A) was correct in deleting the addition made by the Assessing Officer on account of bogus purchases and unexplained money.

(b) Whether the CIT(A) erred in not considering the findings of the GST department and the non-responsiveness of suppliers as evidence of bogus transactions.

(c) Whether the CIT(A) was justified in deleting additions related to unexplained money based on seized documents and statements made during search proceedings.

(d) The appropriate profit rate to apply to unverified purchases and sales to determine the correct taxable income.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Bogus Purchases

Relevant legal framework and precedents: The Tribunal examined the provisions under the Income Tax Act, specifically sections related to assessment and scrutiny of returns, and relied on precedents where courts have dealt with similar issues of bogus purchases.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer made additions based on non-compliance by suppliers to notices and reports from the GST department labeling the suppliers as entry providers. However, the CIT(A) found that the assessee provided substantial documentation, such as invoices, e-way bills, and banking details, to substantiate the genuineness of purchases.

Key evidence and findings: The Tribunal found that the assessee had provided sufficient documentation to support its claims, including GST compliance documents and evidence of payment through banking channels.

Application of law to facts: The Tribunal applied the principle that mere non-compliance by suppliers does not automatically render purchases bogus if substantial evidence is provided by the assessee.

Treatment of competing arguments: The Tribunal considered the Revenue's argument that the suppliers were identified as fraudsters but found that the evidence provided by the assessee was substantial enough to challenge this claim.

Conclusions: The Tribunal directed the Assessing Officer to adopt a profit rate of 5% on the unverified purchases, aligning with previous assessments, rather than disallowing the entire amount.

(b) Unexplained Money

Relevant legal framework and precedents: The Tribunal referred to Section 69A of the Income Tax Act, which deals with unexplained money, and considered the evidentiary requirements for such additions.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) deleted the addition made by the Assessing Officer, as the transactions were owned by the director in his personal capacity and not by the company.

Key evidence and findings: The Tribunal found that the documents were seized from the director's residence, and his statement under Section 132(4) supported the claim that the transactions were personal.

Application of law to facts: The Tribunal applied the principle that additions under Section 69A require corroborative evidence, which was lacking in this case.

Treatment of competing arguments: The Tribunal considered the Revenue's argument for the addition but found the CIT(A)'s reasoning and the director's statement credible.

Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 14 lakh.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal noted, "Considering the totality of the facts of the case and considering the fact that the Assessing Officer in assessee's own case for the four preceding assessment years has adopted the profit rate of 5% on account of bogus / untested purchases, therefore, we are of the considered opinion that adoption of the same profit rate of 5% on account of untested / bogus purchases of Rs. 13,80,63,994/- will meet the ends of justice."

Core principles established: The Tribunal reinforced the principle that substantial documentation provided by the assessee can challenge the presumption of bogus transactions, and that unexplained money additions require corroborative evidence.

Final determinations on each issue: The Tribunal partially allowed the Revenue's appeal by directing a 5% profit rate on unverified purchases and upheld the deletion of additions related to unexplained money.