Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer vs Sunsteel on 17 June, 2004
Equivalent citations: (2005)92TTJ(AHD)1126
ORDER
A.L. Gehlot, A.M.
1. This appeal by the Revenue is directed against the order of the GIT(A), dt. 2nd May, 1997, for asst. yr. 1994-95.
2. The ground raised in this appeal pertains to addition of Rs. 27,39,410 being purchases in cash from unaccounted sources. The business of the assessee is trading of iron and steel on wholesale basis. The assessee has shown total sales of Rs. 28,17,207 and disclosed loss of Rs. 94,740. The calculation of GP comes to 3.36 per cent. During the assessment proceedings the AO noticed purchases of Rs. 27,39,407 from 17 different parties. The AO noticed that three parties were not found at the address given by the assessee, namely, M/s Ansu Associates, Rolex Enterprises and Konica Steel. The AO asked to produce these parties but the same could not be produced before the AO. The AO has also issued summons under Section 131 to six parties which were returned by the postal authority with the remark "not known". In case of Prapti Corpn., summons issued was served but nobody remained present on the date of hearing. The AO has also made enquiries from bank and Shroff Pari Rakesh Kumar Natwarlal in respect of bill discounted. The AO noticed that the discounting cheques were issued to parties. The AO further noticed from the cash book of Pari R. Natwarlal that the amount was taken away by Mr. so and so on behalf of the party on whose name cheques are issued. On the basis of above facts the AO concluded that the cheques issued in favour of purchase parties were being encashed by the partners of the firm or their relatives. The AO has also examined the case in view of Section 40A(3) of the IT Act. After enquiry the AO noticed that the parties from whom purchases were made which were accounted for in the books of account are not found in existence. The AO further observed that the assessee has not made serious efforts to discharge to prove the genuineness of the transaction by producing those parties before the AO. The AO concluded that unaccounted funds have been utilised by the assessee for purchase of iron and steel in cash. The source of purchase was not established by the assessee. The AO treated the said purchase of Rs. 27,39,407 as income of the assessee and taxed under the head income from other sources. The CIT(A) deleted the impugned addition with the following observations :
"Therefore, if the AO makes an addition of unexplained purchases of Rs. 27,39,410 as income from other sources under Section 69C then he has to give immediately a deduction of Rs. 27,39,410 for incurring such purchase. In the result, the figure required to be added would be nil. For this the reference made by the Authorised Representative on the report of expert group for redrafting the entire IT Act is also very important. In the said report, suggesting the amendment in Section 69C, has clearly mentioned that 'At present, unaccounted expenditure is treated as income under Section 69C of the Act, but there is no corresponding provision for disallowance of such expenditure. Hence, while the assessees are presently being brought to charge under Section 69C, they are able to set off the expenditure as deduction under the general provision of Section 37 of the Act'. Till the law is amended the correct interpretation of the Act as it presently stands has to be given. The AO was, therefore, required to give a deduction of Rs. 27,39,410 for such expenditure. I direct the AO to give such deduction of Rs. 27,39,410 and in the result, the addition would be nil. The addition of Rs. 27,39,410 is, therefore, deleted."
3. We have heard the learned Representatives of the parties and perused the records. The finding of the CIT{A) is that the assessee had discharged all its onus and complied with his duties providing that purchases are genuine, parties are not bogus, goods have been received and only after receiving the goods, the sales were made. It has been further held that there is no finding of AO or no material on record which shows payments of impugned purchases came back to the assessee. The CIT(A) has also examined the issue in the light of provisions of Section 69C and held that if the AO makes an addition of unexplained purchase of Rs. 27,39,410 as income from other sources under Section 69C, then he has to allow deduction for incurring expenses on such purchases. Apart from above, we find undisputed sale of Rs. 28,17,207. The assessee declared GP of Rs. 94,740. The calculation of GP comes to 3.36 per cent. The undisputed fact is that the AO has accepted that the assessee maintained quantity details in respect of material purchased and sold. Inventory of closing stock filed is also not in dispute. If the addition made by the AO is on account of purchases of Rs. 27,39,407, the total GP comes to Rs. 28,34,147 (27,39,407 + 94,740). The GP calculation on this estimation of profit comes to 100.6 per cent.
We find that such GP is not possible in such a trade of the assessee. The finding of the AO is that following three parties were not found nor were they produced for examination :
1. Anus Association Rs. 2,10,709
2. Rolex Enterprises Rs. 1,11,042
3. Konica Steel Rs. 2,58,734
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Rs. 5,80,485
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On the basis of above facts, at the most it, can be presumed that the assessee did not make purchases from above parties but made from other unregistered dealer and got benefit of margin of purchases from unregistered dealer. We find that to that extent an estimation of profit can be made which will be fair and reasonable under the facts and circumstances of the case. Therefore, for the above purposes we estimate Rs. 50,000 and accordingly the- order of the CIT(A) is modified and the addition to the extent of Rs. 50,000 is sustained and balance addition of Rs. 26,89,407 is deleted out of the total addition made of Rs. 27,39,407.
4. In the result, the appeal of the Revenue is partly allowed.