2013 (2) TMI 707 - AT - Income Tax

Bogus purchases - Held that - The primary onus which laid upon the Assessee was discharged. It was upon the Assessing Officer to prove that these documents are not genuine.Once these documents have not been adversely commented, it cannot be held that the entire purchases with these parties are bogus. Thus, from the facts and circumstances of the case and also in view of the various evidences, as discussed above, we partly set aside the impugned order passed by the Commissioner (Appeals) and hold that the entire purchases aggregating to ₹ 82,84,497, from the four parties are genuine and, therefore, the entire addition made by the Assessing Officer and partly sustained by the Commissioner (Appeals) stands deleted. - Decided in favour of assessee Commission brokerage - Held that - All these payments have been made to these persons through account payee cheque who are duly assessed to tax and have shown these commissions as their income. The learned CIT(A) has noted the nature of services rendered which was mainly on account of negotiation of the rates, timely execution of the order and delivery of goods identifying the customers / purchases and host of other responsibility. The details of transactions have also been incorporated by the learned CIT(A). Based on these evidences and nature of services, the learned CIT(A) has deleted the said addition. We, thus, do not find any reason to deviate from such findings - Decided in favour of assessee

Issues Involved:
1. Disallowance of non-genuine and bogus purchases.
2. Relief on account of commission and brokerage.
3. Validity of the order passed under section 144 r/w section 254 of the Income Tax Act, 1961.

Detailed Analysis of Judgment:

1. Disallowance of Non-Genuine and Bogus Purchases:

The Department appealed against the learned Commissioner (Appeals) for restricting the disallowance of non-genuine and bogus purchases to 25%. The Assessee, a partnership firm engaged in the manufacturing and export of stainless steel cutlery, had purchases from seven parties amounting to Rs. 1,75,10,053. The Assessing Officer (AO) disallowed purchases worth Rs. 82,84,497 after five parties could not be located and two parties did not confirm transactions. Despite several opportunities, the Assessee failed to furnish verification details. The Commissioner (Appeals) initially rejected additional evidence but was later directed by the Tribunal to admit and verify it.

During the second round of assessment, the AO reiterated the disallowance due to non-compliance by the Assessee. The Commissioner (Appeals), however, disallowed only 25% of the purchases, citing the Tribunal's decision in Vijay Proteins Ltd. v/s ACIT, stating that without purchases, there cannot be sales or exports. The Commissioner (Appeals) reasoned that the Assessee inflated purchase prices and saved on sales tax and octroi. The Tribunal, upon review, found that the Assessee provided substantial evidence, including bank statements, purchase invoices, and sales tax certificates, proving the genuineness of the purchases. Consequently, the Tribunal deleted the entire addition made by the AO and partly sustained by the Commissioner (Appeals).

2. Relief on Account of Commission and Brokerage:

The Department contended that the relief of Rs. 3,41,238 on account of commission and brokerage was not covered in the assessment order. The AO had disallowed this amount under "Other Indirect Expenses" during the original assessment, which was confirmed by the Commissioner (Appeals). The Tribunal, however, restored the matter for fresh assessment. The Commissioner (Appeals) adjudicated this issue, noting that the Assessee provided income tax records of the parties and payments were made through account payee cheques. The Commissioner (Appeals) deleted the disallowance based on affidavits, photocopies of cheques, and income tax records.

The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the payments were made through account payee cheques, and the parties were assessed to tax, showing the commissions as their income. The nature of services rendered, such as negotiation of rates and timely execution of orders, was also considered.

3. Validity of the Order Passed Under Section 144 r/w Section 254:

The Assessee contended that the order passed by the AO under section 144 r/w section 254 was void ab initio and bad in law. However, no arguments were put forth by the Assessee's counsel regarding this issue, and it was dismissed as "not pressed."

Conclusion:

The Tribunal dismissed the Department's appeal and partly allowed the Assessee's appeal. The Tribunal confirmed the genuineness of the purchases and deleted the entire addition made by the AO. The relief on account of commission and brokerage was upheld based on substantial evidence provided by the Assessee. The issue regarding the validity of the order under section 144 r/w section 254 was dismissed as not pressed. The order was pronounced in the open Court on 22nd February 2013.

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