2009 (5) TMI 928 - AT - Income Tax

Tribunal Partly Allows Assessee's Appeals: Reduces Trading Addition, Deletes Unexplained Investment Additions Under Section 145(3) and 69C

Nisraj Real Estate & Export (P) Ltd. Versus Assistant Commissioner of Income Tax

The Tribunal partly allowed the assessee's appeals and cross-objections, dismissing the Revenue's appeals. It confirmed a reduced trading addition under ... Trading addition - unproved purchases while computing business income - CIT(A) deleted the addition u/ss. 69 and 69C - he observed that the purchases made remained unverified and therefore, relying upon decision of Kachwala Gems vs. Jt. CIT [2006 (12) TMI 83 - SUPREME COURT] invoked the provisions of s. 145(3) and directed the AO to apply the GP rate of 51 per cent as against gross profit declared by the assessee at 49.07 per cent, thus sustaining the trading addition. HELD THAT:- We concur with the views of CIT(A) as regards the deletion of addition u/ss. 69 and 69C which appears to be reasoned one. As regards the application of s. 145(3), there is no dispute that the assessee has submitted the documents to prove the purchases but the same could not be verified in spite of the opportunity given to the assessee. None of the purchases in dispute was verified, though the sales have been made and therefore, definitely purchases have been made by the assessee. However, there is every possibility that purchases have been made from some other parties and there is every possibility of leakage of revenue. Therefore, we find no infirmity in the order of CIT(A) who has rightly invoked the provisions of s. 145(3). Estimation of income, ld AR has submitted that the assessee has declared GP rate of 48.2 per cent in the following year and CIT(A) has observed that the GP rate is abnormally higher than the general trend - In such circumstances and facts of the case and to cover up the leakage of revenue, an addition will meet both the ends of justice. Therefore, the AO is directed to act accordingly. Thus ground Nos. 2.1 and 2.2 of the assessee are partly allowed and ground Nos. 1 and 2 of the Revenue are dismissed. Addition on account of unexplained investment in shares - shares representing off market transactions have been credited in demat account - HELD THAT:- There is no dispute that the assessee has made payment to the broker through account payee cheque. The copies of the bills of the broker are on record. The reason for delay in demat account and other allegations have been explained by the assessee hereinbefore and also before the authorities below. Therefore, the AO is not justified in treating the investment in shares as unexplained and no addition on this account can be made. The addition so made is directed to be deleted. Thus ground No. 3 of the assessee is allowed. Addition on account of claim on capital gain on shares - bogus capital gain - assessee has shown long-term capital gain on the sale of shares of one company - AO, treated it as unexplained income under the head income from other sources - CIT(A) confirmed the action of the AO. HELD THAT:- Assessee has received the payment through account payee cheque and the assessee has submitted the copies of the sale bills which are on record. Confirmation of broker, assessee's bank account, party's ledger account, party's bank account, copy of demat application and allotment of demat account were submitted before CIT(A) who has sent the same for verification to the AO. The assessee has also submitted that the assessee has applied for opening the demat account which was wrongly filed in the non-corporate status and it was later on rectified. All the allegations made have been explained. In such circumstances and facts of the case, we find no reason with the AO to make any addition on this account and he is directed to treat the same as long-term capital gain and allow the claim of the assessee . Thus ground No. 4 of the assessee is allowed. Addition u/s. 69C on account of unexplained expenditure - CIT(A) deleted the addition u/s. 69C and proviso to s. 69C but invoked the provisions of s. 145(3) and estimated the income by directing the AO to apply the GP rate of 30 per cent on declared sales and sustained the addition - he confirmed the action of the AO in not allowing the deduction u/s. 80HHC on such addition. HELD THAT:- We concur with the views of CIT(A) as regards the deletion of addition u/s. 69C and proviso to s. 69C since there is no doubt on the sales made by the assessee and definitely purchases have been made and therefore, the purchases cannot be said to be unexplained but at the same time, the assessee has made the purchases may be from some other parties. Therefore, the quantum of purchases declared remained unverified as discussed in the order of the authorities below. Therefore, we find no infirmity in the order of CIT(A) who has rightly invoked the provisions of s. 145(3). Estimation of income, ld CIT(A) has observed that GP rate of 30 per cent is reasonable whereas the assessee has declared GP rate of 48.72 per cent and no malice on declaring of higher GP rate is proved and no material is there on record in this regard. Therefore, in such circumstances and facts of the case, though the application of s. 145(3) is upheld yet no addition is called for. Therefore, the AO is directed to delete the addition sustained by CIT(A) and allow the claim u/s. 80HHC as claimed by the assessee. Thus ground Nos. 1 and 2 of the Revenue are dismissed and ground Nos. 2.1, 2.2 and 3 of the cross-objection of the assessee are partly allowed. Issues Involved:1. Invoking provisions of Section 145(3) and confirming trading addition.2. Deletion of addition under Section 69C.3. Addition on account of unexplained investment in shares.4. Addition on account of capital gains on shares.5. Charging of interest under Section 234B.Issue-wise Detailed Analysis:1. Invoking Provisions of Section 145(3) and Confirming Trading Addition:The learned CIT(A) invoked Section 145(3) of the Act and confirmed the trading addition of Rs. 1,66,708, citing unverified purchases. The Tribunal agreed with this invocation, noting that despite opportunities, the assessee could not verify the purchases, suggesting possible revenue leakage. However, considering the GP rate declared by the assessee in the following year, the Tribunal directed a reduced addition of Rs. 25,000 to cover the revenue leakage.2. Deletion of Addition under Section 69C:The AO added Rs. 43,93,872 under Section 69C for unproved purchases, but the CIT(A) deleted this addition. The Tribunal concurred with the CIT(A), stating that since exports were made, purchases must have occurred, albeit possibly from different parties. The Tribunal upheld the deletion of the addition under Section 69C, emphasizing that the purchases could not be verified but were necessary for the business operations.3. Addition on Account of Unexplained Investment in Shares:The AO added Rs. 3,51,400 under Section 69 for unexplained investment in shares, which the CIT(A) confirmed. The Tribunal found that the payment for the shares was made through an account payee cheque, and the delay in crediting the demat account was due to procedural issues. The Tribunal directed the deletion of the addition, noting that the investment was genuine and recorded in the books of accounts.4. Addition on Account of Capital Gains on Shares:The AO treated the long-term capital gain of Rs. 45,24,258 as unexplained income, citing managed transactions and discrepancies in the demat account. The CIT(A) upheld this view. However, the Tribunal found that the transactions were genuine, supported by account payee cheques and proper documentation. The Tribunal directed the AO to treat the income as long-term capital gain and allow the claim.5. Charging of Interest under Section 234B:The Tribunal noted that charging of interest under Section 234B is mandatory and consequential, thus no detailed adjudication was required.Additional Points:- The Tribunal dismissed the Revenue's appeals regarding the deletion of additions under Section 69C for the assessment years 2003-04 and 2004-05.- The Tribunal upheld the CIT(A)'s decision to invoke Section 145(3) but directed no addition due to the higher GP rate declared by the assessee.- The Tribunal allowed the assessee's cross-objections partly, directing the deletion of sustained additions and allowing the claim under Section 80HHC.Conclusion:The Tribunal's comprehensive analysis resulted in partly allowing the assessee's appeals and cross-objections, while dismissing the Revenue's appeals. The Tribunal emphasized the importance of genuine transactions and proper documentation, directing appropriate adjustments to the AO's findings.