2017 (6) TMI 919 - AT - Income Tax

Additions on account of creditors for purchase of goods - Held that - As find from the findings of the assessing officer and the Ld. CIT(A) that the purchase parties were not found to be existed at the given addresses. In spite of giving opportunities, the assessee failed to prove the genuineness of the transactions as a result whole of the purchases were disallowed by the assessing officer. The ld. CIT(A) had restricted the disallowance to the extent of 25% of the total disallowance on the basis of the decision of ITAT Ahmedabad in the case of Vijay Proteins Co. vs. ACIT (1996 (1) TMI 144 - ITAT AHMEDABAD-C). We noticed that the disallowance of whole of the purchases by the assessing officer was excessive therefore 25% of the alleged disallowance confirmed by the Ld.CIT(A) appeared to be reasonable Addition u/s. 40A(3) - Held that - As noticed that the assessing officer has obtained photocopies of cheques from the bank and detected nature of payment made through these cheques were above ₹ 20,000/- towards purchase made by the assessee in violation of provision of section 40A(3) of the act.. We have further noticed that the assessee failed to give any satisfactory explanation to justify the payments against purchases made in excess of ₹ 20,000/- each, other than account payee cheques or drafts and failed to furnish any supporting documentary evidences. In view of the above facts and circumstances we do not find any reason to interfere in the detailed finding of the Ld.CIT(A). Introduction of capital from unexplained sources - unaccounted income of the assessee - Held that - As assessee has introduced fresh capital during the year and has not furnished convincing supporting evidences in respect of introduction of capital. We further find that the source of capital explained by assessee in the form of cash received from Dubai appeared to be inconclusive without involving any banking channel. After considering the detailed findings of the Ld.CIT(A), consequently we could not find any cogent supporting evidences to intrude in the decision of Ld.CIT(A).

Summary

Issues Involved:
1. Addition of ?67,83,020/- regarding creditors for purchase of goods.
2. Addition of ?59,65,729/- under Section 40A(3) of the Income Tax Act.
3. Addition of ?15,33,000/- on account of remittance from income earned outside India.

Issue-wise Detailed Analysis:

1. Addition of ?67,83,020/- regarding creditors for purchase of goods:

During appellate proceedings, the assessing officer required the assessee to provide confirmations from creditors and details of purchases. The creditors were not found at the given addresses, and the assessee failed to substantiate the genuineness of transactions. Consequently, the assessing officer added ?2,71,32,085/- to the income, treating the creditors as non-existent and merely book entries. The CIT(A) provided part relief, reducing the disallowance to ?67,83,020/- based on the precedent set by ITAT Ahmedabad in the case of Vijay Proteins Ltd., where 25% of unexplained purchases were disallowed. The Tribunal upheld CIT(A)’s decision, finding the 25% disallowance reasonable and dismissing both the assessee's and revenue's appeals on this issue.

2. Addition of ?59,65,729/- under Section 40A(3) of the Income Tax Act:

The assessing officer discovered that payments exceeding ?20,000/- were made via non-account payee cheques, violating Section 40A(3). The assessee failed to justify these payments, leading to an addition of ?59,65,729/-. The CIT(A) upheld this addition, noting that the assessee did not provide satisfactory explanations or documentary evidence. The Tribunal agreed with CIT(A), emphasizing the lack of justification for the payments and the distinct nature of transactions compared to unexplained creditors. Thus, the Tribunal found no reason to interfere with CIT(A)’s detailed findings and dismissed the appeal on this ground.

3. Addition of ?15,33,000/- on account of remittance from income earned outside India:

The assessing officer noted that the assessee introduced fresh capital of ?15,33,000/- during the year but failed to provide satisfactory evidence for the source. The claim of remittance from Dubai was unsupported by convincing documentation, involving cash transactions without any banking channel. The CIT(A) upheld the addition, highlighting the dubious nature of the salary certificates and the lack of clarity on the duties performed or services rendered. The Tribunal, after reviewing the findings and evidence, found no reason to interfere with CIT(A)’s decision, thus dismissing the appeal on this ground.

Revenue’s Appeal:

The revenue contended that the CIT(A) erred in restricting the addition without proper substantiation from the assessee regarding the authenticity of creditors. This issue was interconnected with the first ground of the assessee’s appeal and was adjudicated together. The Tribunal upheld CIT(A)’s decision to restrict the addition to 25% of the total disallowance, finding it reasonable and justified.

Conclusion:

In conclusion, the Tribunal dismissed both the appeals of the assessee and the revenue, upholding the CIT(A)’s decisions on all grounds. The Tribunal found the CIT(A)’s approach reasonable and supported by precedents, with no substantial evidence from the assessee to warrant interference. The order was pronounced in the open court on 20-04-2017.