2016 (5) TMI 1380 - AT - Income Tax

Addition on account of bogus purchases and labour charges - notice u/s. 133(6) could not be served on the parties in the address given by them - Held that - The confirmations were filed in respect of all the 7 parties and income tax returns were filed in respect of 2 parties and copy of PAN card was also furnished in respect of 3 parties. Details of TDS deducted have also been provided. The appellant has discharged the initial onus of proving the genuineness of purchases and labour but the Assessing Officer never attempted to conduct any verification and he wanted everything to be filled by the appellant including information which were not available with the appellant. When the above details were filled by the appellant, the burden was shifted to the AO when the confirmations were filled and no addition could be made without proving that there was bogus purchases and income tax returns of purchase parties. Further, the appellant made payments by DD or account payee cheques. There is not a single cash payment to any of the purchase or labour party. Complete details have been filed regarding purchases and labour charges including name of the person in whose name the cheques were cleared, as seen from the bank statement of the appellant. It is further seen that on the cheques were cleared in the name of the parties to whom the payments were claimed to have been made. The AO without verifying such details, footed his conclusion only on Ward Inspector's Report which in itself seems to be done negligently without putting much efforts and application of mind. The AO's very basis for making the said additions is flawed and unsustainable. In the circumstances, there is no case for any such ad hoc disallowance. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases and labor charges for the assessment year 2008-09.
2. Applicability of CBDT’s monetary limits for filing appeals for the assessment year 2009-10.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases and Labor Charges for the Assessment Year 2008-09:

The primary issue in the appeal for the assessment year 2008-09 is whether the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer (AO) on account of bogus purchases and labor charges. The AO had disallowed ?41,95,897/- for inflated and bogus purchases and ?4,87,504/- for bogus labor charges after notices issued under section 133(6) to six parties were either not served or the parties were not available at the given addresses. The assessee was unable to produce the parties for verification, leading the AO to conclude that the purchases and labor charges were bogus.

On appeal, the Ld. CIT(A) deleted the additions, noting that the assessee had provided complete details regarding the purchases and labor charges, including confirmations, PAN, bank statements, and copies of returns. The Ld. CIT(A) observed that the AO had not conducted any verification based on the information provided and had relied solely on the Inspector’s report. The Ld. CIT(A) emphasized that the payments were made by DD or account payee cheques, and the AO failed to verify who encashed the cheques. The Ld. CIT(A) concluded that the AO’s basis for making the additions was flawed and unsustainable.

The Tribunal upheld the Ld. CIT(A)’s decision, noting that the assessee had discharged its initial onus of proving the genuineness of the purchases and labor charges. The Tribunal referenced a similar case from the previous assessment year 2007-08, where the addition/disallowance made by the AO on account of bogus purchases and labor charges was deleted. The Tribunal found that the AO had not established that the purchases were bogus or inflated and had ignored the details provided by the assessee.

2. Applicability of CBDT’s Monetary Limits for Filing Appeals for the Assessment Year 2009-10:

For the assessment year 2009-10, the addition made towards bogus purchases was ?4,50,787/-, and the revenue effect was less than ?10 lakhs. The Tribunal considered CBDT’s latest instructions vide Circular No. 21/2015 dated 10/12/2015, which revised the monetary limits for filing departmental appeals. According to the circular, appeals should not be filed where the tax effect does not exceed ?10,00,000/- before the Appellate Tribunal.

The Tribunal noted that the total demand as per the CIT(A)’s order was below the monetary limits specified in the CBDT circular. Consequently, the Tribunal dismissed the appeal of the Revenue for the assessment year 2009-10, following the CBDT’s instructions to reduce litigation.

Conclusion:

In conclusion, the Tribunal dismissed both appeals filed by the Revenue. For the assessment year 2008-09, the Tribunal upheld the deletion of additions made on account of bogus purchases and labor charges, finding that the AO had not substantiated the claims of bogus transactions. For the assessment year 2009-10, the appeal was dismissed based on the CBDT’s monetary limits for filing appeals, as the revenue effect was below ?10 lakhs.