2016 (9) TMI 384 - AT - Income Tax

Addition on account of purchases made from suspicious dealers - dealers which are allegedly involved in issuing bills and purchases made from the parties in dispute are not genuine - CIT(A) restricted the addition to 5% of the alleged purchases and deleted 95% of the purchases made treating them as genuine purchases - Held that - It is not in doubt that the assessee has made purchases and also made sales and they are duly accounted for in the books of account and offered to tax therefore entire purchase made cannot be treated as unexplained expenditure. No valid reason to interfere with the observations and to hold that the purchases made are bogus for the reason that none of the findings of the Ld. CIT(A) have been rebutted by the Revenue. Also as there is no basis for sustaining the addition of 5% of purchases u/s. 69C since the purchases have been held to be genuine and there is no scope for sustaining the same partly. Thus, the cross objections filed by the assessee are allowed.

Summary

Issues:
Appeal by Revenue against Ld. CIT(A) order on addition of purchases from suspicious dealers as bogus.

Analysis:
The appeals involved the Revenue challenging the deletion of additions made on purchases from suspicious dealers by the Ld. CIT(A) for assessment years 2009-10 to 2011-12. The Revenue contended that the purchases were bogus due to lack of proof and dealers not being produced. The Ld. CIT(A) found the purchases genuine with one-to-one correlation to sales, allowing 95% relief. The Revenue argued that the Assessing Officer's decision was correct based on information from Sales Tax authorities. The assessee's counsel countered, emphasizing the genuine nature of purchases and lack of concrete evidence for additions. The Ld. CIT(A) held that the purchases were genuine based on documentary evidence and banking transactions.

The Assessing Officer treated certain purchases as bogus due to lack of dealer presence and alleged unaccounted cash transactions. The Ld. CIT(A) restricted the addition to 5% of purchases, considering the appellant's submissions and findings. The Ld. CIT(A) highlighted the importance of evidence and lack of adverse material to support the Revenue's claims. The appellant's production of invoices, stock records, and banking transactions supported the genuineness of purchases. The Ld. CIT(A) referenced legal precedents to emphasize the need for concrete evidence before making additions.

The Ld. CIT(A) emphasized the one-to-one correlation between purchases and sales for traders like the appellant. The Assessing Officer's presumption of gray market purchases was not substantiated with concrete evidence. The Ld. CIT(A) observed that taxing only the income component was essential under the Income Tax Act, not the entire transaction amount. The Ld. CIT(A) concluded that the addition of 5% of purchases was reasonable to prevent revenue leakage. The decision was supported by legal principles and previous judicial pronouncements.

The Tribunal upheld the Ld. CIT(A)'s order, finding no valid reason to dispute the genuineness of purchases. The cross objections by the assessee challenging the 5% addition were allowed as the purchases were deemed genuine. The appeals by the Revenue were dismissed, and the cross objections by the assessee were upheld.