2017 (2) TMI 918 - AT - Income Tax

G.P. addition - Addition on account of alleged peak of unaccounted investment made in purchases - Held that - In the absence of any documentary evidence, the impugned additions cannot be made solely based on the action of the third person that is the DRI on the allegation that the assessee has under-valued its import of PFY and has made payments by under invoicing. The impugned additions do not hold any water. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition on account of G.P. addition and on account of alleged peak of unaccounted investment made in purchases. - Decided in favour of assessee. Addition of bogus purchases - Held that - There is no dispute that the purchases made from M/s. Raj Impex were duly supported by bills and all the payments have been made by account payee cheques. There is also no dispute that M/s. Raj Impex have confirmed all the transactions. There is no evidence to draw the conclusion that the entire purchase consideration which the assessee had paid to M/s. Raj Impex had come back to the assessee in cash.It is also true that no adverse inference has been drawn so far as the sales made by the assessee is concerned. We also find that the entire purchases made by the assessee from M/s. Raj Impex have been accounted by Raj Impex and have paid the taxes accordingly - Decided in favour of assessee. Addition on account of estimation of oil gain - Held that - It is true that the A.O. has made the additions taking a leaf out of the findings given in A.Y. 2004-05. Except for this, there is nothing on record which could suggest that the assessee has made oil gain during the year under consideration. In the absence of any corroborative evidence, we decline to interfere with the findings of the ld. CIT(A).- Decided in favour of assessee.

Issues Involved:

1. Addition on account of G.P. (Gross Profit) addition.
2. Addition on account of alleged peak of unaccounted investment made in purchases.
3. Deletion of addition on account of bogus purchases.
4. Deletion of addition on account of estimation of oil gain.

Issue-wise Detailed Analysis:

1. Addition on account of G.P. addition:

The assessee, engaged in the business of manufacturing and trading of yarn and grey cloth, faced an addition of ?8,18,683/- based on the G.P. rate applied by the A.O. This was derived from an alleged undervaluation of imports, as indicated by a DRI report. The A.O. used invoices and notings on the reverse side of invoices to justify the addition. The assessee argued that the variation in purchase prices was due to differences in yarn quality. Despite detailed explanations, the A.O. remained unconvinced, leading to the addition. The tribunal found that the A.O.'s reliance on DRI's findings without independent evidence was misplaced. The tribunal referred to judicial precedents emphasizing the need for independent assessment by the A.O. and directed the deletion of the addition.

2. Addition on account of alleged peak of unaccounted investment made in purchases:

An additional amount of ?5,68,610/- was added based on the peak of unaccounted investment in purchases, calculated from specific invoices. The tribunal noted that the A.O.'s findings were heavily influenced by DRI's assumptions without substantive evidence of actual payment of the differential amount. The tribunal highlighted the lack of documentary evidence supporting the A.O.'s conclusions and directed the deletion of this addition as well.

3. Deletion of addition on account of bogus purchases:

The revenue appealed against the deletion of ?5,19,86,585/- added for bogus purchases. The A.O. based this addition on a report linking the assessee to transactions with M/s. Raj Impex, deemed bogus. The assessee provided confirmations, PAN details, I.T. returns, and bank statements supporting the legitimacy of these transactions. The CIT(A) found no basis for treating the purchases as bogus, noting that the payments were made by account payee cheques, and the sales were accepted by the A.O. The tribunal upheld the CIT(A)'s findings, emphasizing the lack of evidence to prove that the purchase consideration returned to the assessee in cash.

4. Deletion of addition on account of estimation of oil gain:

The revenue also contested the deletion of ?5,00,000/- added for estimated oil gain. The A.O. based this on findings from a previous year (2004-05), where an oil gain was observed. The assessee clarified that the production process had changed, and no oil gain occurred during the relevant year. The CIT(A) agreed, noting the absence of evidence for the year under consideration. The tribunal upheld this decision, citing the lack of corroborative evidence to support the A.O.'s addition.

Conclusion:

The tribunal allowed the appeals filed by the assessee for A.Y. 2006-07 and 2007-08, directing the deletion of additions related to G.P. and unaccounted investment. The tribunal dismissed the revenue's appeal for A.Y. 2007-08, upholding the CIT(A)'s deletion of additions for bogus purchases and oil gain estimation. The judgment emphasized the necessity of independent and evidence-based assessment by the A.O., rejecting reliance solely on third-party reports and assumptions.

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