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2007 (7) TMI 647 - AT - Income TaxBogus purchases of goods - Additions u/s 68 and 69C - deemed income on account of unexplained expenditure on purchases - non-genuineness of exports - HELD THAT - In the present case, the assessee had furnished purchase bills issued by abovenamed four parties, their CST/RST numbers, PANs, proof regarding payment made by account payee cheques, etc. which was expected from a prudent purchaser. We are thus of the view that the assessee had discharged its primary onus. Besides two parties of the purchase i.e. M/s Adinath Traders and M/s Om Shree Jewellers had appeared before the AO and confirmed the sales made to the assessee. The assessee had also accounted for all purchases in the books. The goods purchased from these four parties were exported and customs authorities have certified the exports made by the assessee. In support of the exports, necessary documents were furnished which included invoice of sending the goods to Image Link Co. Ltd., Japan and M/s A.R. Gems Co. Ltd., Bangkok. The goods were exported by Thai Airways International Public Co. Ltd. and payments were made to custom house agent Shri P.K. Jain. The cargo was handled through Rajasthan Small Industries Corporation Ltd. and foreign currency was received through bank. The assessee had also credited the export realization received through banking channel in its books of account. Thus, we are of the view that the balance of bona fide of purchases made from the abovenamed four parties is in favour of the assessee especially in absence of any positive evidence which the AO ought to have brought on record that goods were purchased from some other named parties if not from the abovenamed four parties and that amount paid to them through account payee cheques by the assessee was ultimately returned by them to the assessee. In absence of such positive evidence, the AO in our view was not justified in treating the purchases claimed to have been made from the abovenamed four parties as non-genuine and bogus. The learned CIT(A) has also erred in sustaining the addition made in this regard u/s 69C of the Act and again under proviso to s. 69C of the Act without appreciating the aforesaid facts and circumstances properly. Thus, there was no occasion before the AO to invoke provisions of s. 145(3) of the Act and making additions in question i.e. u/s 69C of the Act and under proviso to s. 69C of the Act. Both the additions are directed to be deleted. Ground Nos. 1 and 2 are thus allowed in favour of the assessee. In the result, appeal is allowed.
Issues Involved:
1. Sustaining addition of Rs. 15,19,724 by treating genuine purchases as bogus. 2. Directing the AO to make addition of Rs. 15,19,724 under Section 69C of the IT Act by treating it as deemed income. 3. Deleting addition of Rs. 34,35,390 made by the AO on account of unexplained cash credit under Section 68. 4. Rejecting the application under Section 154 of the Act by confirming double addition of Rs. 15,19,724. Issue-Wise Detailed Analysis: 1. Sustaining Addition of Rs. 15,19,724 by Treating Genuine Purchases as Bogus: The assessee contested the addition of Rs. 15,19,724, arguing that the CIT(A) erred in treating genuine purchases as bogus without rejecting the books of accounts or applying Section 145(3) of the IT Act. The AO doubted the purchases from four parties (M/s Adinath Traders, M/s Om Shree Jewellers, M/s Ambika Impex, and M/s M.D. Exports), alleging they issued accommodation bills without delivering goods. The AO made an addition under Section 69C and disallowed the expenditure under the proviso to Section 69C. The CIT(A) upheld this addition. The assessee provided evidence, including audited statements, export invoices, and bank certificates, to support the genuineness of the purchases and exports. The Tribunal found that the AO failed to appreciate the material evidence provided by the assessee, which established the genuineness of the purchases and exports. Thus, the Tribunal directed the deletion of the addition of Rs. 15,19,724 under Section 69C and the proviso to Section 69C. 2. Directing the AO to Make Addition of Rs. 15,19,724 under Section 69C of the IT Act by Treating it as Deemed Income: The AO treated the purchases as unexplained expenditure under Section 69C and disallowed the same amount under the proviso to Section 69C, resulting in double addition. The Tribunal held that the assessee had provided sufficient evidence to prove the genuineness of the purchases and exports. The Tribunal noted that the AO did not disprove the documents furnished by the assessee, such as export invoices, airways bills, and bank certificates. The Tribunal concluded that the AO was not justified in treating the purchases as non-genuine and making the additions under Section 69C and the proviso to Section 69C. Consequently, the Tribunal directed the deletion of both additions. 3. Deleting Addition of Rs. 34,35,390 Made by the AO on Account of Unexplained Cash Credit under Section 68: The Revenue questioned the deletion of the addition of Rs. 34,35,390 made by the AO under Section 68 on account of non-genuine exports. The AO treated the export proceeds received in convertible foreign exchange through banking channels as unexplained income. The Tribunal noted that the assessee fulfilled all conditions under Section 80HHC for claiming deduction on export sales. The Tribunal found that the AO allowed the deduction under Section 80HHC, which implied acceptance of the genuineness of the exports. The Tribunal concluded that the AO's action of treating the export proceeds as unexplained under Section 68 was arbitrary and unjustified. Therefore, the Tribunal upheld the CIT(A)'s order deleting the addition of Rs. 34,35,390. 4. Rejecting the Application under Section 154 of the Act by Confirming Double Addition of Rs. 15,19,724: The assessee questioned the rejection of its application under Section 154, arguing that the CIT(A) misinterpreted Section 69C by confirming the double addition of Rs. 15,19,724. The Tribunal, having already held the purchases as genuine and directed the deletion of additions under Section 69C and the proviso to Section 69C in ITA No. 325/Jp/2005, found that the present appeal became infructuous. Consequently, the Tribunal dismissed the appeal as having become infructuous. Summary: The Tribunal allowed ITA No. 325/Jp/2005, directing the deletion of additions made under Section 69C and the proviso to Section 69C. The Tribunal dismissed ITA No. 365/Jp/2005, upholding the deletion of the addition under Section 68. The Tribunal also dismissed ITA No. 341/Jp/2005 as infructuous, following the decision in ITA No. 325/Jp/2005.
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