2015 (12) TMI 1234 - AT - Income Tax

Revenue's Appeal Dismissed: 6% Profit from Loose Sheet Transactions Upheld

Income tax Officer, Ward – 1, Bangalore Versus M/s. Sai Bhagawan Traders

The Revenue's appeal against CIT (A)'s direction to adopt 6% profit from transactions in loose sheets during a survey was dismissed. The loose sheets ... Unaccounted purchase - CIT (A) directed the AO to adopt 6% as the profit arising out of the transactions reflected in the loose sheets, found at the time of survey of assessee’s premises, thereby deleting the balance addition made by the AO - Held that:- If we take a presumption that the items in the loose sheets reflected purchases made by the assessee which were not recorded in its books, then definitely on the date of survey there should have been a stock variation. Items which were purchased by the assessee or which were alleged to have been purchased by the assessee were the same items which the assessee was manufacturing and trading. Hence in the nature of the trade, we cannot presume that assessee held all the purchased stock with it without effecting any sales. Since there was no discrepancy in stock, obvious conclusion is that whatever was purchased was sold by the assessee. As to the argument of the Ld. DR that stock might have been kept elsewhere, there is nothing on record to suggest any place of business for the assessee other than the one which was surveyed. Thus to consider the whole of the purchases as unexplained investment was incorrect. Assessee was continuously purchasing and selling and therefore the preponderance of probability is that successive purchases would have been financed by the sales of the earlier purchases. In such situation at the most what we can consider as unexplained investment is the first purchase. All the purchases were in the month of October, 2006 and the first purchase was on 03.10.2006. Assessee would have sold these and used such funds for the next purchase. In such a situation, in our opinion, what the assessee could have earned is only the profits from such purchases. Even if we consider the first purchase to have been made out of unaccounted income, the estimated profits from the unaccounted sales would be more than sufficient to justify the source. Against the gross profit rate of 2 to 3% suggested by the assessee, based on a decision of Third Member bench of Ahmedabad Tribunal in the case of ITO v. Gurubachansingh J. Juneja [1995 (8) TMI 83 - ITAT AHMEDABAD-C ], CIT (A) had taken a higher rate of 6%. We find that in the circumstances of the case, directions of the CIT (A) were fair. We do not find any reason to interfere. - Decided against revenue Issues:1. Disputed profit arising from transactions in loose sheets found during survey2. Alleged unexplained cash purchases not recorded in books3. CIT (A) directions on addition of unaccounted cash purchases and profit estimationIssue 1: Disputed profit arising from transactions in loose sheets found during surveyThe Revenue appealed against CIT (A)'s direction to adopt 6% profit from transactions in loose sheets during a survey. The loose sheets listed cash purchases totaling &8377; 2,15,05,363 from 37 parties. The AO summoned 25 parties confirming sales to the assessee. The assessee claimed to act as a commission agent for the goods, earning a 1% commission. The AO treated the cash purchases as unexplained investment under section 69 of the Act, adding the amount to the income.Issue 2: Alleged unexplained cash purchases not recorded in booksThe assessee contended that certain parties denied sales to them, and some bills were duplicates. CIT (A) directed exclusion of duplicate bills and amounts from unconfirmed parties. CIT (A) held that only 6% of the unaccounted cash purchases could be considered as profit, limiting the addition to that amount. The Revenue argued that the loose sheets clearly indicated unrecorded purchases and challenged CIT (A)'s decision.Issue 3: CIT (A) directions on addition of unaccounted cash purchases and profit estimationThe Revenue contended that the unexplained purchases were correctly added under section 69 of the Act, emphasizing the lack of explanations from the assessee. However, the assessee argued that no discrepancy was found in stock during the survey, indicating no unrecorded purchases. The Tribunal noted that the absence of stock variation suggested that the purchases were sold. Considering the trade nature, the Tribunal concluded that the estimated profit from the unaccounted sales justified the source. Upholding CIT (A)'s decision, the Tribunal dismissed the Revenue's appeal.This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's reasoning behind upholding CIT (A)'s decision.