2023 (1) TMI 362 - AT - Income Tax

ITAT Chennai accepts delay due to Covid-19, disputes unaccounted purchases. Rationale questioned, 25% estimation applied.

The appeal before the ITAT Chennai involved a delay in filing due to Covid-19 lockdown and a dispute over unaccounted purchases. The Tribunal accepted the ... Unaccounted purchases - unaccounted income of the assessee - During the course of survey, unaccounted purchases & unaccounted sales were noticed - HELD THAT:- It is only net result of unaccounted purchases & unaccounted sales, needs to be taxed. Since, the Department had already taxed profit earned out of unaccounted transactions, the question of making further additions towards unaccounted purchases does not arise. In this case, the facts remain that the assessee has offered additional income for two assessment years towards unaccounted sales, whereas the total unaccounted purchases for the impugned assessment year - Therefore, it is difficult to accept the arguments of the assessee that income earned out of unaccounted sales is plugged back into the business and which is source for unaccounted purchases, because, unaccounted purchases noticed by the Department is more than the amount of additional income offered by the assessee. Therefore, assessee could not able to explain source for unaccounted purchases over and above what was disclosed during the course of survey. Hence, to cover up the deficit in source for unaccounted purchases, we direct the AO to estimate 25% of gross profit on unaccounted purchases and delete the balance additions made towards unaccounted purchases. Appeal filed by the assessee is partly allowed. Issues:Delay in filing appeal due to Covid-19 lockdown, Reopening of assessment under section 147, Addition towards unaccounted purchases, Dispute regarding source of unaccounted purchases.Analysis:The appeal before the Appellate Tribunal ITAT Chennai involved various issues, starting with the delay of 486 days in filing the appeal by the assessee. The delay was attributed to the Covid-19 lockdown, and the Tribunal considered the judgment of the Hon'ble Supreme Court regarding the extension of limitation due to the pandemic. Both the learned AR and DR agreed to condone the delay, leading the Tribunal to accept the explanation and condone the delay in filing the appeal.Regarding the substantive issue of the case, the assessment was reopened under section 147 due to unaccounted purchases noticed during a survey conducted at the business premises. The assessee had converted the proprietorship firm into a partnership firm and declared additional income on unaccounted sales. However, the Assessing Officer (AO) made an addition towards unaccounted purchases, as the source was not adequately explained by the assessee. The First Appellate Authority upheld the AO's decision, leading to the appeal before the Tribunal.During the proceedings, the assessee argued that since additional income was declared based on unaccounted sales, no further addition should be made towards purchases. On the other hand, the DR supported the AO's decision, emphasizing the lack of evidence regarding the source of income from unaccounted sales being reinvested in the business. After considering the arguments and reviewing the facts, the Tribunal disagreed with the AO's rationale for making additional additions towards unaccounted purchases. The Tribunal highlighted that the Department had already taxed the profit from unaccounted transactions and directed the AO to estimate 25% of the gross profit on unaccounted purchases and delete the balance additions made.In conclusion, the appeal was partly allowed by the Tribunal, emphasizing that the assessee failed to explain the source for unaccounted purchases adequately. The Tribunal's decision aimed to strike a balance by estimating a portion of the gross profit on unaccounted purchases while deleting the excess additions made by the AO. The order was pronounced in Chennai on December 21, 2022, by the Appellate Tribunal ITAT Chennai.