2017 (10) TMI 240 - AT - Income Tax

Addition u/s 69C - assessee has allegedly made sales of gold bars during the impugned assessment year wherein sale proceeds have been stated to have been received in cash from undisclosed buyers which has been deposited by the assessee in the bank account of the assessee and hence sources of these cash deposit could not be satisfactorily explained by the assessee - Held that - The assessee in the instant case as we have seen could not satisfactorily explain the sources of cash deposit of huge magnitude of more than ₹ 49 crores in his bank account which he claimed to be from cash sales from gold bars to the persons wherein the identity of the buyers are not revealed by the assessee. Thus, the assessee could not satisfactorily explain the sources of cash deposit in the bank account and consequently sources of incurring expenditure by way of purchases claimed by the assessee in its Profit and Loss Account of ₹ 48.78 crores could not be satisfactorily explained by the assessee and onus cast u/s 69C was not satisfied which will make amount covered by such expenditure represented by purchases of gold bars to be deemed income of the assessee under the deeming fiction of Section 69C. The said Section 69C is further controlled by proviso which has an overriding effect and provides that notwithstanding anything contained in any other provision of the 1961 Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. Thus , Section 69C read with proviso makes it abundantly clear that the amount represented by expenditure incurred by the assessee towards purchases of gold bars constitute income within deeming fiction of 69C of the 1961 Act. Thus, we set aside the order of learned CIT(A) and confirm the addition to the tune of ₹ 49,17,69,925/- (Rs Forty nine crores seventeen lacs sixty nine thousand nine hundred and twenty five only ) for detailed reasons as cited above - Decided against assessee. Addition in respect of difference in closing capital of Meenakshi Enterprises (proprietary concern of the assessee) - addition proposed by learned CIT(A) based on remand report of the AO - Held that - The said additions has been made by learned CIT(A) for the first time in his appellate order which has led to enhancement of the assessment. The assessee had contended that the assessee was never show caused by learned CIT(A) before such enhancement of income and the principles of natural justice are vitiated while as per learned CIT(A) orders the assessee was asked to explain the said difference in capital to which the assessee never replied. In fitness of things in the interest of justice, the assessee deserves one more opportunity and let the matter be restored to the file of the AO for fresh adjudication on merits after giving opportunity of being heard to the assessee and after considering the replies of the assessee.

Issues Involved:
1. Gross Profit Estimation
2. Addition of Unexplained Income
3. Deletion of Undisclosed Income
4. Genuineness of Purchase and Sale Transactions
5. Enhancement of Income by CIT(A)
6. Procedural Irregularities and Natural Justice

Detailed Analysis:

1. Gross Profit Estimation:
The assessee contested that the CIT(A) erred in estimating a higher Gross Profit (GP) rate of 5% on sales shown in the books without appreciating the submissions made by the assessee and ignoring the facts of the case. The CIT(A) upheld the GP ratio of 5% on sales as the assessee failed to provide satisfactory evidence for the transactions, and the GP ratio of 0.17% declared by the assessee was deemed unreliable.

2. Addition of Unexplained Income:
The CIT(A) enhanced the income by adding ?1,35,516/- as the difference in the closing capital balance of M/s. Meenakshi Enterprise, treating it as unexplained income of the assessee. The assessee argued that no query was raised by the CIT(A) before enhancing the income, which led to a violation of natural justice principles.

3. Deletion of Undisclosed Income:
The Revenue challenged the CIT(A)'s decision to delete the entire addition of ?49,17,69,925/- as undisclosed income, which was added by the AO as the assessee could not produce any evidence of purchase and sale transactions. The CIT(A) instead upheld the addition by estimating a GP ratio of 5% on sales.

4. Genuineness of Purchase and Sale Transactions:
The AO observed that the purchases were made from non-existent parties, and the assessee failed to produce party-wise details of sales and purchases. The assessee's inability to provide the identity of purchasers and the irregularities in the bank account led the AO to conclude that the transactions were fabricated. The CIT(A) also noted that the assessee did not reveal the names of the persons who bought huge quantities of gold in cash, which indicated that the assessee was shielding the purchasers.

5. Enhancement of Income by CIT(A):
The CIT(A) enhanced the income based on the remand report of the AO, which highlighted discrepancies in the capital balance of Meenakshi Enterprises. The assessee argued that no opportunity was given to rebut the findings before the enhancement, which violated the principles of natural justice.

6. Procedural Irregularities and Natural Justice:
The assessee contended that the AO denied reasonable opportunity and did not consider the evidence placed on record. The CIT(A) called for remand reports and found that the assessee's explanations were not satisfactory. The assessee also argued that the AO acted vindictively and harassed the assessee, which was not addressed by the CIT(A).

Conclusion:
The Tribunal concluded that the assessee failed to satisfactorily explain the sources of cash deposits in the bank account, which were claimed to be from cash sales of gold bars. The Tribunal upheld the addition of ?49,17,69,925/- as undisclosed income under Section 68, as the assessee did not reveal the identity of the buyers. The Tribunal also restored the issue of the difference in the closing capital balance of Meenakshi Enterprises to the AO for fresh adjudication. The appeal filed by the Revenue was allowed, and the appeal filed by the assessee was partly allowed for statistical purposes.

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