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 explanation for the delay and partially allowed the appeal. It disagreed with the AO's rationale for additional additions towards unaccounted purchases, directing a 25% estimation of gross profit on such purchases and deleting the excess additions. The decision aimed to balance the assessee's declaration of additional income from unaccounted sales with the lack of evidence on the reinvestment source. The order was pronounced on December 21, 2022.

---

---

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.

---