2020 (10) TMI 1087 - AT - Income Tax

Tribunal confirms trading additions, stresses substantiation

The Tribunal upheld the CIT(A)'s decision in dismissing the appellant's appeal, including confirming trading additions under Section 145, treating ... Bogus purchases - Estimation of income - investigations carried out by the Investigation Wing, Mumbai as well as on the basis of statements recorded U/s 132(4) - HELD THAT:- There is nothing on record to show that the ITO had not disclosed to the assessee, the material he had collected from the Investigation Wing of the Income Tax Department. ITO/AO is not bound by any technical rules of law of evidence. It is open to him to collect materials to facilitate the assessment even by private enquiry but if he desires to use the said material so collected, then in that eventuality, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. In this case, the A.O. had informed the assessee in respect of material collected by him and had also provided adequate opportunity to the assessee of explaining the same. Even otherwise, from the records, we also noticed that in the statement of Shri Bhanwal Lal Jain recorded U/s 132(4) of the Act, it was specifically admitted that they were involved in providing bogus entries by issuing accommodation bills. AR could not point out any material on record to show that the above concerns from whom the purchases made, were in fact carrying out any commercial activity and were maintaining stocks. Presumption of correctness is attached with the statement recorded U/s 132(4) of the Act as the said statement was recorded by the officials of the IT department during discharge of their official duties and since the said statement is recorded on oath, therefore, the presumption of correctness is attached with the said statement until it is rebutted or uprooted by the assessee. We also noticed that the ld. CIT(A) while reaching to the conclusion on the basis of material placed on record had held that since the assessee has failed to justify the purchases made by him, therefore, had rightly invoked the provisions of Section 145(3) - since the assessee failed to substantiate the purchases of ₹ 90,42,850/-, therefore, keeping in mind, the better trading results declared by the assessee, a lumpsum addition of ₹ 10.00 lacs were sustained. - Decided against assessee. Issues:1. Invocation of Section 145 for confirming trading additions without invoking the provision initially.2. Treatment of purchases from specific firms as non-verifiable and the subsequent trading addition.3. Justification of lump sum addition by the CIT(A) based on the failure to substantiate purchases.Issue 1: Invocation of Section 145The appellant contested the invocation of Section 145 by the CIT(A) for confirming trading additions without the initial invocation by the Assessing Officer (AO). The CIT(A) justified the invocation based on the lack of justification for alleged bogus purchases. The appellant failed to substantiate the purchases, leading to the conclusion that the books of accounts were unreliable. The AO's trading addition was based on bogus purchases, and the CIT(A) upheld it under Section 145(3) due to the lack of justification. The Tribunal found that the AO informed the appellant of the collected material and provided an opportunity to explain, meeting the legal requirements. The Tribunal upheld the CIT(A)'s decision on invoking Section 145(3) as the appellant failed to provide a plausible justification, maintaining the presumption of correctness attached to the material collected.Issue 2: Treatment of Non-Verifiable PurchasesSpecific purchases from Maximus Gems, Surya Diam, and Navkar India were treated as non-verifiable by the AO, leading to a trading addition. The appellant contested this treatment, asserting the genuineness of the transactions and the use of account payee cheques for payments. However, investigations revealed that these purchases were not genuine, as confirmed by statements recorded under the IT Act. The Investigation Wing found that the firms provided accommodation entries instead of actual sales. The Tribunal noted the lack of evidence showing commercial activity by the concerned firms and upheld the CIT(A)'s decision based on the material presented. The Tribunal referenced the Supreme Court's stance on evidence collection by the AO, emphasizing the appellant's failure to rebut the presumption of correctness attached to the recorded statements.Issue 3: Justification of Lump Sum AdditionThe CIT(A) restricted the addition to a lump sum of Rs. 10.00 lakhs based on the failure to substantiate purchases worth Rs. 90,42,850, despite improved trading results and increased turnover. The appellant failed to provide new evidence to challenge the CIT(A)'s decision during the appeal. The Tribunal found no reason to interfere with the CIT(A)'s findings, as the appellant did not present any new facts or circumstances to rebut the decision. Therefore, the Tribunal upheld the CIT(A)'s order regarding the lump sum addition, leading to the dismissal of the appellant's appeal.In conclusion, the Tribunal dismissed the appellant's appeal, upholding the CIT(A)'s decision on all issues, including the invocation of Section 145, treatment of non-verifiable purchases, and the justification of the lump sum addition. The Tribunal emphasized the importance of providing adequate justification and evidence to challenge trading additions and affirmed the legal principles guiding the assessment process.