2025 (6) TMI 1380 - AT - Income Tax

Unaccounted purchases and income derived therefrom - difference between the purchases recorded by the assessee and the sales confirmed by seller - AO applied GP rate of 1.75% on these unaccounted purchases - CIT(A) had rejected the explanation of the assessee for the reason that no evidence in this regard was brought on record before him HELD THAT - The assessee has now filed copy of ledger account of M/s. Essar Oil Limited purchase register copy of VAT returns and statement of reconciliation etc. which are fresh evidences and were not filed before the lower authorities. In the interest of justice we therefore deem it proper to set aside the matter to the file of the jurisdictional Assessing Officer to allow another opportunity to the assessee to reconcile the difference in the purchases. Assessing Officer is directed to allow another opportunity to the assessee to reconcile the difference in the purchase account. The assessee is also directed to comply before the Assessing Officer and not to seek adjournment without any pressing reason. Appeal of the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:

• Whether the difference of Rs. 52,57,515/- between the purchases recorded by the assessee and the sales confirmed by M/s Essar Oil Limited can be treated as unexplained purchases and consequently added to the income of the assessee.
• Whether the addition of Rs. 92,006/- on account of gross profit calculated at 1.75% on the unexplained purchases is justified.
• Whether the assessment order passed under Section 143(3) of the Income Tax Act, 1961 is valid and legal.
• Whether the levy of interest under Sections 234B and 234C without proper application of mind is justified.
• Whether the assessee should be permitted to file additional or fresh evidence to explain the difference in purchases.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of addition of Rs. 52,57,515/- as unexplained purchases

Relevant legal framework and precedents: Under the Income Tax Act, 1961, the Assessing Officer (AO) is empowered to verify the correctness of the income declared by the assessee and to make additions if any expenditure or purchase is found to be unexplained or unaccounted for. Section 133(6) enables the AO to seek information from third parties to verify transactions. The principle of natural justice and fair opportunity to explain discrepancies is also embedded in the assessment proceedings.

Court's interpretation and reasoning: The AO found a discrepancy of Rs. 52,57,515/- between the purchase figure disclosed by the assessee and the sales figure confirmed by M/s Essar Oil Limited. The AO treated this difference as unaccounted purchases and added the amount to the income. The CIT(A) upheld this addition, rejecting the assessee's explanation that the difference was due to VAT component being excluded from the Profit & Loss account and directly accounted in the Balance Sheet.

Key evidence and findings: The assessee had not provided any explanation or documentary evidence before the AO to explain this difference. However, before the CIT(A), the assessee submitted an online explanation stating that the difference arose due to VAT treatment. The assessee also filed VAT returns and other documents only before the Tribunal, which were not placed before the lower authorities.

Application of law to facts: The Tribunal noted that the explanation about VAT was not considered by the AO because it was not submitted at that stage, and the CIT(A) rejected it due to lack of documentary proof. The fresh evidence submitted before the Tribunal, including VAT returns and ledger accounts, was not previously on record.

Treatment of competing arguments: The Revenue argued that no explanation was given before the AO and the explanation before the CIT(A) was unsupported by documents. The Revenue did not oppose remand to allow the assessee to explain the difference. The assessee contended that the difference was due to VAT accounting and sought an opportunity to explain and reconcile the difference.

Conclusions: The Tribunal held that in the interest of justice, the matter should be remanded to the AO to allow the assessee a fair opportunity to reconcile the difference in purchases with proper evidence, including the VAT component. The Tribunal directed the AO to consider the additional evidence and explanation without undue adjournments.

Issue 2: Addition of Rs. 92,006/- as gross profit on unexplained purchases

Relevant legal framework and precedents: When unexplained purchases are added to income, the AO may also add gross profit attributable to such purchases as income, based on the established gross profit rate of the business.

Court's interpretation and reasoning: The AO applied a gross profit rate of 1.75% on the unexplained purchases of Rs. 52,57,515/- and made an addition of Rs. 92,006/-. The CIT(A) confirmed this addition.

Key evidence and findings: The gross profit rate was derived from the business records. However, since the primary addition of unexplained purchases was set aside for fresh consideration, the consequential addition of gross profit was also implicitly set aside.

Application of law to facts: The Tribunal did not separately adjudicate on this addition but remanded the entire matter to the AO for fresh consideration, including the gross profit addition, after allowing the assessee to explain the difference in purchases.

Treatment of competing arguments: The assessee challenged the addition, while the Revenue supported it. The Tribunal's remand effectively deferred the decision on this issue.

Conclusions: The addition of Rs. 92,006/- gross profit was not sustained at this stage and was to be reconsidered by the AO after reassessment.

Issue 3: Validity and legality of the assessment order under Section 143(3)

Relevant legal framework and precedents: The assessment order must be passed after proper inquiry and consideration of all relevant facts and explanations. The principle of natural justice requires that the assessee be given an opportunity to explain discrepancies.

Court's interpretation and reasoning: The Tribunal did not find the assessment order to be invalid per se but noted that the assessee was not given adequate opportunity to explain the difference in purchases with documentary evidence before the AO.

Key evidence and findings: The assessee's explanation and supporting documents were submitted only at the appellate stage and not before the AO.

Application of law to facts: The Tribunal's direction to remand the matter to the AO for fresh consideration implied that the assessment order was not final and required reassessment after giving the assessee a fair chance.

Treatment of competing arguments: The assessee argued for quashing the order, while the Revenue sought to uphold it. The Tribunal balanced these by remanding the matter.

Conclusions: The assessment order was not quashed but set aside for fresh adjudication with opportunity to the assessee.

Issue 4: Levy of interest under Sections 234B and 234C without application of mind

Relevant legal framework and precedents: Interest under Sections 234B and 234C is leviable for defaults in advance tax payments and deferment of tax payments, but only if the assessment is valid and the defaults are established.

Court's interpretation and reasoning: The assessee challenged the levy of interest as unjustified and without proper application of mind.

Key evidence and findings: The Tribunal did not specifically analyze this issue in detail but included it within the grounds of appeal.

Application of law to facts: Since the main additions were set aside for fresh consideration, the basis for interest levy was also undermined.

Treatment of competing arguments: The Revenue did not specifically defend this point in detail before the Tribunal.

Conclusions: The Tribunal did not give a separate ruling but implied that interest levy would be reconsidered after fresh assessment.

Issue 5: Admission of additional or fresh evidence

Relevant legal framework and precedents: The appellate authorities have discretion to admit fresh evidence if it is relevant and the party was unable to produce it earlier due to sufficient cause, especially when it serves the interest of justice.

Court's interpretation and reasoning: The Tribunal noted that the assessee produced fresh evidence such as VAT returns, ledger accounts, and reconciliation statements only before the Tribunal and not before the AO or CIT(A).

Key evidence and findings: The fresh evidence was relevant to explain the difference in purchases.

Application of law to facts: The Tribunal admitted the fresh evidence and directed the AO to consider it upon remand.

Treatment of competing arguments: The Revenue did not oppose remand and admission of evidence.

Conclusions: The Tribunal allowed the assessee to file and rely upon additional evidence before the AO and directed the AO to give a fair opportunity to reconcile the purchase difference.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In the interest of justice, we, therefore, deem it proper to set aside the matter to the file of the jurisdictional Assessing Officer to allow another opportunity to the assessee to reconcile the difference in the purchases."

"The assessee is also directed to comply before the Assessing Officer and not to seek adjournment, without any pressing reason. The assessee will be free to file the additional evidences brought on record before us or any other evidence before the Assessing Officer in order to reconcile the difference in the purchases."

Core principles established include the necessity of giving the assessee a fair opportunity to explain discrepancies with supporting evidence before making additions, the admissibility of fresh evidence at the appellate stage in the interest of justice, and the requirement that assessment orders be passed after proper inquiry and application of mind.

Final determinations on each issue were that the additions made by the AO and confirmed by the CIT(A) were set aside for fresh consideration after allowing the assessee to reconcile the difference in purchases with proper evidence. The consequential addition of gross profit and levy of interest were also implicitly