2021 (1) TMI 873 - AT - Income Tax

Bogus purchases - Determination of GP rate at 56.6% - assessee argued when the AO accepted the corresponding sales of the bogus purchases, it is not practicable not to believe the purchases in the event of which the situation gives rise to abnormal GP and NP - HELD THAT - Record speaks that it was made basing on the report of the Income Tax Inspector who reported that when he contacted one Sh. Rakesh Kumar Aggarwal one of the sellers to the assessee in the showroom, it was reported that the assessee was not carrying on any business activities of Pooja articles of brass and so on and so forth. There is no dispute that when the assessee filed voluminous record in support of his contentions, the same were forwarded to the learned Assessing Officer seeking remand report offering his remarks on the documents filed on behalf of the assessee, it goes undisputed that the learned Assessing Officer did not offer any adverse comments on the detailed submissions on facts by the assessee. AO neither rejected the books of accounts nor invoked the provisions of section 145 of the Act before disturbing the trading results. The submission of the assessee that the learned Assessing Officer did not bring any documentary evidence on record to show that the assessee did not purchase any goods as alleged in the assessment order goes undisputed. The prime factor which convinced the Ld. CIT(A) is that the learned Assessing Officer examined the books of accounts and documents punished by the assessee, both at the time of the assessment as well as during the first plate stage, but notice it was pointed out in them. Sales were accepted, but the purchases were suspected, leading to the rumours situation of producing the abnormal GP rate at 56.6%, which is not common in the business conducted by the assessee. Learned Assessing Officer failed to notice this factor also. For these reasons, taking a comprehensive review, we are of the considered opinion that the view taken by the learned Assessing Officer does not appear to be sound and the Ld. CIT(A) deleted the addition by taking a pragmatic view. We, therefore, do not think it necessary to interfere with the same. Unexplained deposits in the savings bank account - HELD THAT - It is not the case of the revenue before us also that the documents produced by the assessee or their books of accounts are untrustworthy or suffer any legal infirmity. It is only on examination of these documents in the books of accounts, Ld. CIT(A) found that all the deposits are properly explained and are supported by relevant documents, which were available before the learned Assessing Officer, but the learned Assessing Officer failed to verify the same properly to reach a just conclusion. In the circumstances, we find it difficult to reject the factual findings of the Ld. CIT(A), which are formally based on the books of accounts and the other documents submitted by the assessee. Thus addition cannot be sustained and the Ld. CIT(A) rightly deleted the same. Revenue appeal dismissed.

Summary

Issues involved:
Challenging deletion of additions made by the assessing officer on account of bogus purchases and cash deposit for the assessment year 2012-13.

Analysis:
1. The assessing officer made additions of ?1,38,17,203 on account of alleged bogus purchases and ?40,20,000 towards unexplained cash deposits. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted these additions, leading to the Revenue's appeal.
2. The assessee, engaged in the gift items and furniture business, filed the return declaring an income of ?6,70,500 for the year. The CIT(A) deleted the disputed additions after the assessee's appeal against the assessment order under section 143(3) of the Income Tax Act, 1961.
3. The CIT(A) considered the evidence produced by the assessee during the first appellate proceedings, including a remand report, and concluded that the additions were not sustainable. The Revenue contended that the CIT(A) failed to appreciate the evidence supporting the additions.
4. Regarding the ?1,38,17,203 addition for alleged bogus purchases, the assessing officer based it on a report from an Income Tax Inspector. However, the Inspector's report did not conclusively prove the alleged irregularities in the purchases.
5. The CIT(A) found that the assessing officer did not reject the books of accounts or doubt the sales, which included sales from the alleged bogus purchases. The CIT(A) reasoned that without concrete evidence, the assessing officer's suspicions could not justify the additions.
6. In the case of the ?40,20,000 addition for unexplained cash deposits, the CIT(A) noted that the transactions were properly recorded in the books of accounts and supported by relevant documents. The assessing officer failed to adequately verify the sources of these deposits.
7. The CIT(A) concluded that both additions lacked sufficient evidence to be sustained, as the assessing officer did not provide substantial proof to justify them. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

This detailed analysis highlights the key arguments, evidence, and reasoning behind the decision to delete the additions made by the assessing officer, as upheld by the CIT(A) and the Tribunal.