Purchase price per unit of unaccounted river sand can not be taken solely on the sworn statement of the partner without corroborative material
In a recent judgment, ITAT Chennai has held that purchase price per unit of unaccounted river sand purchased by the firm can not be determined solely on the sworn statement of the partner which is not supported by any corroborative documentary material.
ABCAUS Case Law Citation:
4787 (2025) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the AO in adopting the average purchase price of river sand at Rs. 1,500/- per unit as against the assessee’s claim of Rs. 500/- per unit.
The appellant assessee was a partnership firm engaged in the business of manufacturing ready-mix concrete involved in execution of civil construction projects. A survey action under section 133A of the Income tax Act, 1961 (the Act) was carried out at the business premises of the assessee, simultaneously with a search operation conducted in the case of one of its partners.
Consequent to the findings emanating from the said survey, the AO reopened two assessments and one assessment was selected for compulsory scrutiny assessment.
During the course of the survey proceedings, it was noticed that the assessee had been utilizing both M-sand and river sand in its ready-mix concrete manufacturing activity. Certain folders containing details of purchases of river sand made outside the regular books of account were found and impounded. On verification of the said impounded material, the AO observed that the assessee had made unaccounted purchases of river sand for the three years.
Based on the statement of the Managing Partner recorded during the course of survey, the AO adopted the average rate of river sand at Rs.1,500 per unit and accordingly computed undisclosed business income arising from such unrecorded purchases which were added to the total income of the assessee.
The CIT(A) dismissed the appeal of the assessee observing that the assessee failed to furnish any cogent evidence or documentary proof substantiating the purchase price claimed and therefore, the estimation made by the AO was found to be reasonable and in accordance with facts on record.
Before the Tribunal, the assessee submitted that the cost of river sand, as evidenced by the latest purchase invoice available on record, was Rs. 309/- per unit. It was therefore contended that the same could not be estimated at Rs. 1,500/- per unit as adopted by the AO, which was very unreasonable.
It was further submitted that, in the absence of any contrary material brought on record by the Revenue, the actual purchase price of Rs. 309/- per unit ought to be adopted for the purpose of determining the quantum of unaccounted purchases.
The Tribunal noted that the AO had adopted a purchase price solely on the sworn statement of one of the partners of the assessee and was not supported by any corroborative documentary material. The CIT(A) confirmed the action of the AO, observing that the assessee had failed to substantiate the contention that the purchase price could have been lower, by way of credible documentary evidence.
The Tribunal further observed that the contention of the assessee that the purchase price per unit was Rs. 309/-, being the price applicable when river sand is purchased directly from the Government. However, said price could not be treated as applicable to purchases made from licensed dealers. In the instant case, it was an admitted position that the assessee procured the river sand from license holders during the impugned assessment years.
In view of this, the Tribunal opined that the price of Rs. 309/- per unit, as claimed by the assessee, cannot be adopted. At the same time, the Tribunal observed that there was no material on record to substantiate the AO’s adoption of Rs. 1,500/- per unit as the actual purchase price incurred by the assessee.
As a result, the Tribunal adopted a reasonable estimate of the purchase price at Rs. 770/- per unit, which represented a simple average of Rs.1,500/-, Rs. 309/-, and an intermediate price of Rs. 500/-, as a fair and equitable measure.
Accordingly, the Tribunal directed the AO to adopt the purchase price of river sand at Rs. 770/- per unit while computing the quantum of unaccounted purchases.
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