ITAT deletes additions for unproved purchases and sales, finds no evidence of bogus transactions or fictitious parties

ITAT Cuttack-AT ruled in favor of the assessee on multiple grounds. The tribunal deleted additions made for alleged unproved purchases and sales, finding no evidence to prove these transactions were bogus or that sellers/buyers were fictitious. The 10% profit estimation on unproved purchases and 5% on unproved sales was rejected as unsustainable. Regarding cash creditors, one matter was restored to AO for re-adjudication after proper cross-examination opportunity. For loan creditors, additions were deleted as revenue failed to provide contrary evidence against substantial documentation including IT returns, confirmation letters, TDS deductions, and interest income declarations by creditors.

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Issues Involved:
1. Estimation of profit in respect of 'unproved purchases' @10%.
2. Estimation of profit in respect of 'unproved sales' @5%.
3. Addition representing cash credits being loans received by the respective assessees from various entities.

Summary:

Issue 1: Estimation of Profit in Respect of 'Unproved Purchases' @10%

The assessee argued that the purchases were made through cheques, supported by invoices, and recorded in the stock register, with no defects found. The AR cited the Supreme Court decision in Odeon Builders Pvt. Ltd., emphasizing that disallowances based solely on third-party information without further scrutiny are invalid. The Tribunal found no evidence of concealment or bogus transactions in the search or post-search inquiry, and thus, the addition of 10% profit on 'unproved purchases' was deleted.

Issue 2: Estimation of Profit in Respect of 'Unproved Sales' @5%

The assessee contended that all sales were duly recorded and supported by banking transactions, with no incriminating evidence found. The AR referenced the Delhi High Court decision in Agson Global (P.) Ltd., which held that no addition is warranted in the absence of incriminating evidence. The Tribunal noted that the AO relied on unverified information and failed to conduct independent inquiries. Consequently, the addition of 5% profit on 'unproved sales' was deleted.

Issue 3: Addition Representing Cash Credits as Loans from Various Entities

The assessee argued that loans were genuine, supported by documentation, and no incriminating evidence was found during the search. The AR highlighted that interest was paid, TDS deducted, and returns filed by the loan creditors. The Tribunal observed that the AO did not provide any statements or evidence to prove the loans were bogus. In the case of Bajrangbali Steel Industries Pvt. Ltd., the Tribunal restored the matter to the AO for re-adjudication after granting the assessee an opportunity to cross-examine the concerned parties. For other assessment years, the Tribunal found the loans genuine and deleted the additions.

Conclusion:

The Tribunal ruled in favor of the assessee, deleting the additions related to 'unproved purchases' and 'unproved sales' due to lack of evidence. The matter of cash credits for Bajrangbali Steel Industries Pvt. Ltd. for the assessment year 2019-20 was remanded for further examination, while other additions were deleted based on the genuineness of the transactions. The appeals were allowed accordingly.

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