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2016 (6) TMI 1078 - AT - Income TaxGP addition on the unrecorded purchases - Held that - We find that the purchase details from its sister concerns M/s Maklai Timber Mart on 31-03-2007 amounting to ₹ 17,38,951/- while the bank loan vide OD of ₹ 18 lakhs was transferred to the sister concern on 28th September, 2006 which has been claimed as against the purchases made on the last day of March, 2007 and in support the assessee company has filed copies of delivery challans which are not signed by any person. The assessee company submitted that the difference of ₹ 12,62,184/- in the purchases shown as per the P&L account and the sundry creditors was due to the typing error which has occurred as the miscellaneous purchases should be ₹ 28,29,668/- instead of ₹ 38,05,716/-. The assessee company is trying to justify the above differences due to the typing error. We have also found that the learned CIT(A) has not given any notice to the assessee company before enhancing the assessment in the appellate proceedings before the learned CIT(A) , whereas directions were given by the learned CIT(A) to the A.O. to add some GP on the unrecorded purchases on the grounds that the assessee company might have earned profit by selling the purchases out of books. In our considered view, interest of justice will be best served if all the issue of additions made by the A.O. are to be set aside to the file of the AO for de novo determination of all the issues on merit after taking into account the relevant evidences and explanations submitted by the assessee company with respect to the purchases made by the assessee company keeping in view of the stock movement vis- -vis sales made by the assessee company and then arrive at the actual differences which remained after quantitative reconciliation of the stock including examination and verification of genuineness of the purchases made from sister concern Maklai Timber Mart. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Confirmation of additions made by the Assessing Officer. 2. Disallowance of interest amounting to ?1,51,974/-. 3. Addition of ?11,62,184/- as unexplained purchases. 4. Directions to enhance income without valid notice or opportunity. 5. Legality and validity of the Commissioner of Income Tax (Appeals) order. Issue-wise Detailed Analysis: 1. Confirmation of Additions Made by the Assessing Officer: The assessee company, a dealer in timber and plywood, showed discrepancies in its purchases and sales figures. The Assessing Officer (AO) noted a difference of ?12,62,184/- between the purchases shown in the Profit & Loss (P&L) account and the details of sundry creditors submitted. The assessee attributed this to a typing error, but the AO found inconsistencies in the stock statement and sundry creditors list, leading to the addition of ?11,62,184/- to the total income as unexplained purchases. 2. Disallowance of Interest Amounting to ?1,51,974/-: The AO disallowed interest of ?1,51,974/- claimed by the assessee on a cash credit facility, observing that the funds were used by the sister concern, M/s Maklai Timber Mart, rather than for the assessee's business. The interest was added back to the total income, as the funds were not utilized for the assessee's business purposes. 3. Addition of ?11,62,184/- as Unexplained Purchases: The AO added ?11,62,184/- to the assessee's income due to discrepancies in the purchase details. The assessee's explanation of a typing error was not accepted, as the figures in the stock statement and sundry creditors list did not match. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, citing the lack of a stock register and quantitative details, and doubted the authenticity of the assessee's accounts. 4. Directions to Enhance Income Without Valid Notice or Opportunity: The CIT(A) directed the AO to add Gross Profit (GP) on unrecorded purchases, suspecting that the assessee might have earned profit from out-of-books sales. However, it was admitted that no notice was served to the assessee before this enhancement, violating principles of natural justice. 5. Legality and Validity of the Commissioner of Income Tax (Appeals) Order: The Tribunal noted that the CIT(A) did not provide an opportunity to the assessee before enhancing the assessment. Consequently, the Tribunal set aside the additions and directed the AO to re-examine the issues de novo, considering all relevant evidence and explanations provided by the assessee. The AO was instructed to ensure proper reconciliation of stock and verification of the genuineness of purchases, particularly from the sister concern, M/s Maklai Timber Mart. Conclusion: The Tribunal allowed the appeal for statistical purposes, directing a de novo assessment by the AO, ensuring adherence to principles of natural justice and providing the assessee with an adequate opportunity to present its case. The order was pronounced in the open court on 3rd June 2016.
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