2017 (8) TMI 1302 - AT - Income Tax

Unexplained purchases - genuineness of purchases - Held that - Assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing their replies duly confirming the transactions. The AO has rejected the replies by observing that the replies lacked details and they did not mention about the nature of transactions. A perusal of the affidavits furnished by the suppliers would show that they have confirmed the sales effected by them to the assessee. Further they have also verified and signed the ledger account copies as available in the books of account. When the suppliers confirm that the transactions of sales made by them to the assessee are genuine that too in response to the notices issued by the AO u/s 133(6) of the Act during the course of assessment proceedings in our view the said replies cannot be rejected without bringing on record any material to show that they are not true. We notice that the AO did not bring any material on record and he simply relied upon the report given by the investigation wing. As per Ld A.R the statement given by Shri Bhanwarlal jain is a general statement only. The assessee as stated earlier has furnished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents. Thus we are of the view that the assessee has duly discharged the burden to prove the genuineness of purchases. On the contrary the AO has simply relied upon the report given by the investigation wing. In this view of the matter we are of the view that no addition is called for - Decided in favour of assessee.

Summary

Issues:
Validity of reopening of assessment, Addition relating to bogus purchases, Reduction of addition by CIT(A)

Validity of Reopening of Assessment:
The AO reopened the assessment for the second time, alleging failure to disclose material facts, based on information about bogus transactions by a group. However, the AO did not specify the nature of the failure. The assessee contended that the reopening was invalid as it was done after four years without specifying the failure. The Tribunal noted that the assessee had provided affidavits from suppliers confirming transactions, which the AO rejected citing lack of details. The Tribunal found the AO's observations vague and held that the suppliers' confirmations were valid. As the AO did not provide contrary evidence and relied solely on a report, the Tribunal concluded that the burden of proof was met, and no addition was warranted. Thus, the Tribunal directed the AO to delete the addition.

Addition Relating to Bogus Purchases:
The AO determined alleged bogus purchases based on a profit margin of 9% on the total amount. The CIT(A) reduced the addition to 3% considering VAT and custom duty rates, and the genuineness of the transactions. The revenue challenged this reduction, arguing that the AO's 9% estimate was justified. The assessee maintained that all necessary documents were submitted to prove the genuineness of purchases. The Tribunal found that the assessee had indeed proven the genuineness of purchases through supplier confirmations and affidavits. As the AO's reliance on the investigation report was unsubstantiated, the Tribunal ruled in favor of the assessee, directing the deletion of the addition.

Reduction of Addition by CIT(A):
The CIT(A) reduced the addition from 9% to 3% based on VAT, custom duty rates, and exceptional circumstances. The revenue contended that the original 9% estimate by the AO was valid. However, the Tribunal, considering the genuineness of transactions established by the assessee, found the reduction justified. As the Tribunal ruled in favor of the assessee on the main issue, the reduction by CIT(A) was upheld.

In conclusion, the Tribunal allowed the assessee's appeal, dismissing the revenue's appeal, and directed the AO to delete the addition related to alleged bogus purchases. The Tribunal found the reopening of assessment unnecessary to adjudicate given the favorable decision on the main issue.