2014 (5) TMI 657 - AT - Income Tax

Deletion made as unexplained/ unproved purchases - Painting purchased by assessee Held that - CIT(A) has noted that the assessee company during the year was not engaged in the business of trading in paintings and no deduction was claimed by it on account of expenses incurred on purchases of painting which was treated by AO as unproved /unexplained revenue has not been able to controvert or rebut this position - CIT(A) rightly held that when no deduction was claimed by the assessee on account of purchases of painting, addition could not be made to the total income of the assessee even if the said purchase of painting was found to be unproved /unexplained - payment against purchase of painting was made by the assessee company by cheque and the same was duly reflected in its books of account the order of the CIT(A) is upheld that the addition made by the AO on account unproved purchases of painting was not sustainable Decided against Revenue.

Summary

Issues:
- Addition of Rs.15,18,000 made by the Assessing Officer on account of painting purchased by the assessee treated as unexplained/unproved purchases.

Analysis:

1. Issue of Unproved Painting Purchases:
The appeal was filed by the revenue against the order of the ld. CIT(A)-38 where the addition of Rs.15,18,000 made by the Assessing Officer on account of painting purchased by the assessee was deleted. The assessee, a company engaged in manufacturing capsules filling machines, was part of M/s ACG Art Group. During a search action under section 132 of the Income Tax Act, bogus purchases of paintings by the assessee and other group companies were discovered. The AO added Rs.15,18,000 to the total income of the assessee due to unproved purchase of paintings, despite the assessee's explanation that payments were made by cheque, including VAT amount, supported by documentary evidence.

2. Decision of CIT(A):
The ld. CIT(A) deleted the addition based on the fact that the appellant company was not engaged in the business of trading paintings, did not claim deductions for the painting purchases, and provided evidence of payments by cheque during the assessment proceedings. The CIT(A) found the AO's addition unwarranted as no deduction was claimed on the painting purchase, thus directing the deletion of the Rs.15,18,000 addition.

3. Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not engage in trading paintings and did not claim any deductions for the painting purchase. The Tribunal agreed that since the payment for the painting was made by cheque and reflected in the company's books of account, the addition by the AO was unsustainable. Consequently, the Tribunal dismissed the revenue's appeal, affirming the deletion of the Rs.15,18,000 addition.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the deletion of the addition made by the Assessing Officer on account of unproved painting purchases by the assessee. The decision was based on the lack of deduction claimed by the assessee for the painting purchase, the payment made by cheque, and the absence of trading in paintings by the company.