2013 (11) TMI 1364 - AT - Income Tax

Bogus purchases - Additions u/s 69C of the Income Tax Act on account of bogus purchases Held that - Commissioner(A) in its order observed that as far as the purchases of raw-material are concerned, they are genuine but it is likely that the bills in respect of those purchases have been purchased from the market - Linkage of these purchases with the sale is not ascertainable because the purchases of raw- material has undergone the various processes before its sale as a finished products. The raw-material and finished goods have different entity and cannot have direct link - But its purchase and sales have been accepted by the Excise and Trade Tax Department. The other evidences such as, the freight receipts for bringing the goods inside the factory by citing the vehicle number etc., their entry in the stock register, purchases against For No. ST- 38 issued by Excise and Trade Department of Haryanas and subsequent assessment by Excise and Trade Department of the purchases and sale of the assessee company are the evidences which cannot be ignored. These evidences have clearly shown the authenticity of the purchases - In the assessment of the main companies of the assessee where huge purchases were made, no adverse view has been taken by the Assessing Officer and by Commissioner of Income-tax (Appeal). In the present case the purchase as compared to the other group companies are negligible. It is also a fact that the existence of the vendor party which has sold the goods to the assessee company is doubtful and appeared to have been issued the accommodation entries only but this fact stands alone cannot make the purchase bogus. Relying upon the judgment in the case of DCIT vs. Global Business India Pvt. Ltd. 2013 (9) TMI 362 - ITAT DELHI on an identical issue under almost similar facts, it is held no infirmity has been found in the order of Commissioner(A) and purchases are held to be genuine Decided against the Revenue.

Issues Involved:
1. Erroneous and contrary to facts and law.
2. Deletion of disallowance of Rs. 14,000/- claimed under Section 351 on account of ROC fees.
3. Deletion of addition of Rs. 26,20,800/- made on account of bogus purchases from M/s. Kumar Bansal Traders (P) Ltd.
4. Deletion of consequential addition of Rs. 1,24,643/- made as profit earned in respect of the above transaction.

Detailed Analysis:

1. Erroneous and Contrary to Facts and Law:
This ground was deemed general in nature and did not require independent adjudication.

2. Deletion of Disallowance of Rs. 14,000/- Claimed Under Section 351 on Account of ROC Fees:
The issue raised was regarding the fee paid for the enhancement of share capital claimed under Section 35D of the Income Tax Act, which pertains to the deduction on amortization of certain preliminary expenses. The Appellant's Representative conceded that the issue was covered by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Hindustan Insecticides Ltd. (250 ITR 338), which held that such expenditure is capital expenditure and deduction is not allowable under Section 35D(2)(c)(iii) of the Act. Consequently, this ground was allowed in favor of the revenue.

3. Deletion of Addition of Rs. 26,20,800/- Made on Account of Bogus Purchases from M/s. Kumar Bansal Traders (P) Ltd.:
The Assessing Officer (AO) made an addition of Rs. 26,20,800/- under Section 69(c) of the Act on account of bogus purchases from M/s. Kumar Bansal Traders (P) Ltd. (KBTPL). This was based on a statement by Shri Atul Kumar Bansal, Director of M/s. Vishal Iron Works (P) Ltd., who admitted to providing bogus accommodation entries through various concerns, including KBTPL. The AO's independent inquiries could not trace the existence of KBTPL, and the Principal Officer of KBTPL was not produced by the assessee. Despite these findings, the CIT(A) deleted the addition, being satisfied with the evidence produced by the assessee, such as purchase bills, stock registers, trading accounts, bank statements, and other documentation.

4. Deletion of Consequential Addition of Rs. 1,24,643/- Made as Profit Earned in Respect of the Above Transaction:
The AO made a further addition of Rs. 1,24,643/- on account of profit earned from the above transaction. The CIT(A) deleted this addition as well, reasoning that the purchases were genuine, albeit it was likely that the bills were procured from the grey market. The CIT(A) concluded that the purchases were entered into the stock register and supported by various evidences, including freight receipts and assessments by the Excise and Trade Tax Department.

Tribunal's Findings:
The Tribunal upheld the CIT(A)'s order, emphasizing that the AO's reliance on the investigation wing's information and the absence of independent inquiry did not constitute clinching evidence. The Tribunal referenced similar cases, such as DCIT vs. Global Business India Pvt. Ltd., where the purchases were supported by account payee cheques, transportation vouchers, and other substantial evidence. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the revenue's grounds, affirming the genuineness of the claimed transactions.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the CIT(A)'s deletion of the additions related to the bogus purchases and consequential profit, while allowing the ground related to the ROC fees in favor of the revenue.

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