2016 (7) TMI 1237 - AT - Income Tax

Tribunal rules in favor of assessee, deletes Rs. 79,68,784 addition, finds AO's decision based on presumption.

M/s Rich and Royal, C/o N.A. Kulkarni, Wadal Versus DCIT Circle-3, Kalyan (W) and ACIT Circle-3, Kalyan (W) Versus M/s Rich and Royal

M/s Rich and Royal, C/o N.A. Kulkarni, Wadal Versus DCIT Circle-3, Kalyan (W) and ACIT Circle-3, Kalyan (W) Versus M/s Rich and Royal - TMI Issues Involved:1. Partial allowance of appeal by CIT(A) instead of full.2. Confirmation of addition of Rs. 19,92,196 out of Rs. 79,68,784 by AO.3. Justification of CIT(A) in restricting the addition to 25% of Rs. 79,68,784.4. Overlooking of lack of proof for actual purchases by assessee.5. Reopening of assessment based on alleged bogus purchases.Issue-wise Detailed Analysis:1. Partial Allowance of Appeal by CIT(A):The assessee contended that the CIT(A) should have allowed the appeal in full rather than partially. The CIT(A) had confirmed an addition of Rs. 19,92,196 out of the total Rs. 79,68,784, which the assessee argued was against the principles of law. The Tribunal examined the facts and found that the CIT(A) had restricted the addition to 25% of the impugned purchases without providing sufficient reasoning for this decision.2. Confirmation of Addition of Rs. 19,92,196:The AO had initially added Rs. 79,68,784 to the assessee's income, claiming these were bogus purchases. The CIT(A) reduced this addition to Rs. 19,92,196, equating to 25% of the total alleged bogus purchases. The Tribunal found that the AO and CIT(A) did not dispute that payments for purchases were made by cross cheques and reflected in bank statements. No material evidence was brought to suggest that the payments were received back in cash by the assessee.3. Justification of CIT(A) in Restricting Addition to 25%:The Revenue argued that the CIT(A) was not justified in restricting the addition to 25% of the total alleged bogus purchases. The Tribunal noted that the CIT(A) did not provide a clear rationale for this restriction. The Tribunal also referred to previous decisions where similar additions were deleted entirely, emphasizing that the AO did not record satisfaction that the purchases were not genuine.4. Overlooking Lack of Proof for Actual Purchases:The Revenue contended that the assessee failed to prove the actual purchases from the three parties, and hence, the entire amount should have been disallowed. The Tribunal observed that the AO relied on the statement of Mr. Rakesh Kumar Gupta, which was later retracted. The assessee provided affidavits, ledger accounts, purchase invoices, and bank statements to substantiate the transactions. The Tribunal found that the AO did not make further inquiries or examine the affidavits, and hence, the addition was based on mere presumption.5. Reopening of Assessment Based on Alleged Bogus Purchases:The AO reopened the assessment based on information that the assessee had made purchases from parties providing accommodation bills. The Tribunal noted that the reopening was not contested by the assessee. However, the Tribunal found that the AO did not bring any material evidence to support the claim that the purchases were bogus, relying instead on a retracted statement.Conclusion:The Tribunal concluded that the AO made the addition based on presumption without substantial evidence. The CIT(A)'s decision to restrict the addition to 25% was also without clear reasoning. Therefore, the Tribunal deleted the entire addition of Rs. 79,68,784, allowing the assessee's appeal and dismissing the Revenue's appeal as infructuous.Order:The appeal filed by the assessee is allowed, and the appeal filed by the Revenue is dismissed. The order was pronounced in the open court on 27th July 2016.