2017 (3) TMI 678 - AT - Income Tax

Addition on account of gross profit on the unrecorded purchases - assessee has shown its net profit @ 5% of the turnover and accordingly was of the view that the same amount of profit @ 5% should be adopted for the impugned undisclosed purchase - Held that - On examination of lower authorities, we find that sufficient opportunities were given by the lower authorities to counter the allegations framed by the AO but the assessee failed to do so. The ld AR before us has also not brought anything contrary to the finding of ld CIT(A). Now coming to the rate adopted by the AO for determining the profit on the undisclosed purchases we find that the lower authorities have taken the GP rate as disclosed by the assessee in this return of income and the same rate of profit has also been applied on the undisclosed purchases. The argument of the assessee that the net profit on the undisclosed purchases should be used to work out profit does not have any force. It is because that all the indirect expenses has been duly incurred and claimed by the assessee against the disclose sales of the business. Thus, we are of the view there was no indirect expense which was incurred by the assessee in relation to undisclosed sale and not claimed. Thus, in our considered view the GP rate adopted by the lower authorities is reasonable in the working out the taxable income on the undisclosed purchases. However, in the interest of justice & fair play we are inclined to give one more opportunity to the assessee as he is alleging that the information received in response to the notice issued u/s 133(6) of the Act has not been confronted and DR also has no objection in this regard. Addition on account of circulating capital invested in the undisclosed purchases - Held that - We have already restored the ground No. 4 to the file of AO for fresh adjudication in relation to the taxable profit on the undisclosed purchases. Indeed, undisclosed purchases were made by the assessee and therefore the element of the circulating capital invested in the undisclosed purchases cannot be ignored. Therefore, it is necessary to bring the same under the tax net. The ld AR has submitted that the undisclosed purchases were made on the basis of credit but he failed to bring any evidence in support of his claim. As the present issue is concerned and connected with the ground no. 4 which has been allowed for statistical purposes, therefore we are also inclined to restore this ground to the AO for fresh adjudication in accordance with the law. Disallowance u/s 40A(3) - Held that - AR has not brought anything on record contrary to the finding of ld CIT(A). Thus, we do not find any reason to interfere in the order of ld CIT(A). Hence the ground of appeal raised by the assessee is hereby dismissed. Addition u/s.69 - Held that - AR has not brought anything on record contrary to the finding of ld CIT(A). Though, the assessee was provided several opportunities at the time of appellate stage and remand stage but details was submitted to counter the allegation of the AO. Even before us the ld. AR failed to submit any details. Thus we do not find any reason to interfere in the order of ld CIT(A). Hence, the ground of appeal raised by the assessee is hereby dismissed.

Summary

Issues Involved:
1. Addition of ?2,36,564 on account of gross profit on unrecorded purchases.
2. Addition of ?6,93,038 on account of circulating capital invested in undisclosed purchases.
3. Disallowance under Section 40A(3) of the Act amounting to ?1,14,600.
4. Addition of ?87,292 under Section 69 of the Act.
5. Validity of reassessment proceedings initiated under Section 147 of the Act.

Detailed Analysis:

1. Addition of ?2,36,564 on Account of Gross Profit on Unrecorded Purchases:
The AO observed discrepancies in the purchases shown by the assessee compared to the sales reported by corresponding parties. The AO calculated a gross profit of ?2,36,564 on the unrecorded purchases using a GP rate of 6.55%. The assessee contended that the information gathered under Section 133(6) was not provided for confrontation, violating the principle of natural justice. The CIT(A) upheld the AO's decision, noting that the assessee failed to provide contrary evidence and that the GP rate was reasonable as indirect expenses had already been claimed. The Tribunal restored the issue to the AO for fresh adjudication, emphasizing the need to confront the information gathered under Section 133(6).

2. Addition of ?6,93,038 on Account of Circulating Capital Invested in Undisclosed Purchases:
The AO calculated the circulating capital invested in unrecorded purchases as ?6,93,038, based on a stock turnover ratio of 4.87 times. The CIT(A) upheld this addition, noting the lack of alternative explanation or evidence from the assessee. The Tribunal restored this issue to the AO for fresh adjudication, linking it to the first issue and emphasizing the need to bring the circulating capital invested in undisclosed purchases under the tax net.

3. Disallowance under Section 40A(3) of the Act Amounting to ?1,14,600:
The CIT(A) sustained the AO's disallowance under Section 40A(3) for ?1,14,600. The Tribunal found no contrary evidence presented by the assessee and upheld the CIT(A)'s decision, dismissing this ground of appeal.

4. Addition of ?87,292 under Section 69 of the Act:
The CIT(A) upheld the AO's addition of ?87,292 under Section 69, noting the assessee's failure to provide contrary evidence. The Tribunal found no reason to interfere with the CIT(A)'s order, as the assessee did not submit any details to counter the AO's allegations. This ground of appeal was dismissed.

5. Validity of Reassessment Proceedings Initiated under Section 147 of the Act:
The reassessment proceedings initiated under Section 147 were challenged by the assessee on grounds of not being allowed a reasonable opportunity to represent the case and the validity of the reassessment. However, the Tribunal noted that the assessee did not challenge the reassessment proceedings during the hearing and dismissed these grounds as infructuous.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, restoring certain issues to the AO for fresh adjudication while upholding the CIT(A)'s decisions on other issues. The reassessment proceedings were not challenged during the hearing and were dismissed as infructuous.