2016 (5) TMI 1291 - HC - Income Tax

Bogus purchases - Held that - As noticed that the assessee has furnished some confirmations but for the reasons best known to it, none of the sale bills have been placed on record though directed. On reading of the order of CIT(A) and Tribunal, it is apparent that even sale bills have not been produced before the said appellate authorites. It is also a matter of fact that though the claim of the assessee before the authorities and before this Court with vehemence was that all the transactions are through brokers and the parties do not come in picture. However, on a specific query raised earlier, which is reproduced herein before, not a single name and address of any broker and as to how much amount was paid as brokerage has been placed on record to substantiate the claim made before the lower authorities as well as before this Court. As the assessee has not discharged the onus which was casted on him once the parties either were not found existing or the information was received that the parties are providing accommodation entries only. - Decided against assessee

Summary

Issues Involved:
1. Genuineness of purchases.
2. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
3. Addition of unverifiable purchases.
4. Burden of proof on the assessee.
5. Applicability of previous judgments.

Detailed Analysis:

1. Genuineness of Purchases:
The appellant-assessee engaged in manufacturing and exporting silver jewelry and trading semi-precious stones. The Assessing Officer (AO) noticed discrepancies in the books of accounts, specifically that certain parties from whom purchases were claimed did not exist at the provided addresses. The AO concluded that these parties were providing accommodation entries rather than engaging in genuine transactions. Despite the appellant's contention that purchases were genuine and supported by confirmations with complete addresses and Permanent Account Numbers (PANs), the AO found the books unreliable due to other discrepancies, including maintenance of stock registers. The AO disallowed 25% of the unverifiable purchases amounting to ?14,37,171/-.

2. Rejection of Books of Accounts under Section 145(3):
The AO invoked Section 145(3) of the Income Tax Act to reject the books of accounts due to the non-existence of certain parties and discrepancies in stock registers. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the rejection but reduced the trading addition to ?67,409/-. The Tribunal further modified the addition, disallowing 15% of unverifiable purchases based on overall discrepancies and facts noticed.

3. Addition of Unverifiable Purchases:
The Tribunal, following the judgment in the case of Shri Anuj Kumar Varshney Vs. I.T.O., directed a 15% disallowance of unverifiable purchases. The appellant argued that the purchases were genuine, vouched, and paid through account payee cheques. However, the Court found several discrepancies in the appellant's submissions, including inconsistent addresses and incomplete documentation. The Court noted that the appellant failed to produce sale bills and vouchers, further supporting the AO's adverse inference.

4. Burden of Proof on the Assessee:
The Court emphasized that the onus was on the assessee to prove the genuineness of the transactions once the AO raised doubts about the parties' existence. The appellant's failure to produce the parties or provide complete and consistent documentation led the Court to uphold the AO's findings. The Court cited the case of Venus Arts & Gems, where it was held that non-existence of parties is a serious discrepancy warranting adverse inference.

5. Applicability of Previous Judgments:
The appellant relied on several judgments, including Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd., Commissioner of Income-Tax Vs. Inani Marbles P. Ltd., and Commissioner of Income-Tax Vs. Gotan Lime Khanij Udhyog. The Court distinguished these cases, noting that the facts in the present case involved non-verifiable purchases and non-existent parties, unlike the cited cases which dealt with different issues such as abnormal gross profit rates or unexplored creditors' creditworthiness.

Conclusion:
The Court found no substantial question of law arising from the Tribunal's order, as it was based on factual findings and evidence on record. The appeal was dismissed, affirming the Tribunal's decision to disallow 15% of unverifiable purchases.