2016 (9) TMI 1276 - AT - Income Tax

Bogus purchases - AO has made an addition relying on the official website of the Sales Tax Department, Government of Maharashtra regarding suspicion parities providing accommodation entries - Held that - In response to the show cause notice issued by the AO, the assessee has supplied copy of bills, cop of the bank statement to prove that payment made for purchases, and copy of ledger accounts of all eight parties. The assessee is an individual carrying on a proprietary business in the name of M/s Noble Construction Company, undertaking construction work of dams and canals on behalf of Government of Maharashtra in the interior part of the State. In the interior parts the goods are not available easily. The Government contracts are time barring contract and the work is required to be completed on time. Accordingly, when the material is required in emergency the telephonic orders are placed upon the parties who supply the materials at site. The corresponding consumption of materials in respect of which the purchases were affected by the assessee firm have not been doubted by ld. AO. Neither any document information has been provided by the AO nor he has given any opportunity to the assessee to cross examine the said party and AO has concluded that the purchases by assessee company from the said party is bogus merely on the basis of information from Sales Tax Department. The AO has not conducted any independent enquires for making the addition especially since the assessee has discharged its primary onus of showing books of account, payment by way of account payee cheque and producing bills for purchase of goods. From the record we found that the gross profit of the assessee has been consistently growing year after year which is depicted in the table below and which has been accepted by the Department. The accounts of the appellant were duly audited u/s 44AB of the Act and the same have not been rejected by AO. However from the above table it is evident that assessee has been declaring higher gross profit during the year under consideration as compared to the GP rate shown in earlier years. Thus we do not find any infirmity in the order of CIT(A) sustaining addition of ₹ 3 lakhs out of total purchases.

Summary

Issues involved:
Appeals filed by the revenue against the order of CIT(A)-Mumbai for the assessment years 2010-2011 & 2011-2012 regarding the addition of unexplained expenditure in respect of alleged bogus purchases.

Analysis:

1. Assessment Year 2010-2011: The AO observed that the assessee had purchased materials from parties reported as bogus by the Sales Tax Department. The AO treated the purchases as unexplained expenditure under section 69C of the Act, adding it to the assessee's income. However, the CIT(A) partially deleted the addition after considering various factors presented by the appellant, such as the difficulty in sourcing materials in remote areas, payments made through cheques, and the audited accounts not being rejected. The CIT(A) directed a lump sum addition of ?3,00,000, which was upheld by the ITAT.

2. Assessment Year 2011-2012: Similar to the previous year, the revenue challenged the CIT(A)'s decision regarding the alleged bogus purchases. The ITAT upheld the CIT(A)'s order, emphasizing that the assessee's gross profit had consistently increased over the years, and the purchases were made for genuine business purposes. The ITAT relied on legal precedents to support the decision, highlighting that lack of cross-examination of suppliers does not automatically render the purchases as bogus. The ITAT dismissed the revenue's appeals for both assessment years.

3. Legal Precedents: The ITAT referenced several legal judgments, including the Nikunj Eximp Enterprises case and the Arora Alloys Ltd case, to support the conclusion that the purchases were genuine. These judgments emphasized the importance of considering the overall business context, audited accounts, and the lack of concrete evidence to deem the purchases as non-genuine. The ITAT's decision was also influenced by the consistent growth in the assessee's gross profit, indicating a legitimate business operation.

4. Conclusion: The ITAT dismissed the revenue's appeals for both assessment years, affirming the CIT(A)'s decision to partially delete the addition of alleged bogus purchases. The ITAT's detailed analysis considered the factual matrix of the case, legal precedents, and the overall business operations of the assessee, leading to the conclusion that the purchases were genuine and not unexplained expenditure.