2014 (6) TMI 605 - AT - Income Tax

Genuine purchases treated as non-genuine Held that - The primary onus is on the assessee to prove the genuineness of transactions - It was incumbent upon the assessee to produce the relevant evidence in support of genuineness of the purchase transactions from these parties - AO verified the status of the parties from the official website of Maharashtra Sales Tax Department and found that M/s N B Enterprises was notified as Hawala Dealer who issues bill without delivery of goods - there was enough information and fact came to the knowledge of the AO to doubt the genuineness of the transactions in the absence of quantitative reconciliation of the purchase and the goods used in the execution work as well as sold it is not possible to match the purchases and sales because the sales of the assessee involves consumption of the goods as well as the work executed by the assessee under the contract. The assessee has also failed to establish the actual delivery of goods by production of all details in the challan like quantity and nature of goods supplied under the challan - the mode of transportation and proof of transport of the goods purchased by the assessee are also not brought on record despite due opportunity given in the assessment proceedings as well as in the remand proceedings - merely because the assessee claimed to have been making payment through cheque is not sufficient to establish the genuineness of the transactions when the AO has brought on record the facts and circumstances to indicate the non-genuineness of the purchase transactions in respect of the two parties thus there was no error in the order Decided against Assessee. Addition of unaccounted sales recognition of income - Held that - CIT(A) has directed the AO that if the amount has been recognized as sales by the assessee in the subsequent year then the AO should verify and consider the same - the amount is only an advance received and work was executed only in the subsequent year the amount cannot be treated as sales for the year under consideration - if the assessee has recognized this sale in the subsequent year on the basis of the fact that work has been executed in the subsequent year then this amount cannot be treated as sales of the assessee the AO is directed for verification Decided in favour of Assessee.

Summary

Issues:
1. Addition of non-genuine purchases
2. Addition of unaccounted sales

Issue 1: Addition of non-genuine purchases

The appellant, a partnership firm, challenged the addition of Rs. 24,05,035 as non-genuine purchases in the assessment year 2009-10. The Assessing Officer (AO) treated purchases from two parties as bogus based on returned notices and information from the Maharashtra Sales Tax Department. The appellant contended that the purchases were genuine, supported by invoices and third-party confirmations. Despite the appellant's submissions, the CIT(A) confirmed the addition. The appellant argued that the AO's doubts were unfounded, emphasizing payment through cheques and industry profit margins. However, the ITAT upheld the lower authorities' decision, citing lack of evidence on actual goods delivery, transportation details, and value addition by the appellant in sales, supporting the suspicion of non-genuine transactions.

Issue 2: Addition of unaccounted sales

Regarding unaccounted sales amounting to Rs. 32,87,529, the AO noted discrepancies in the AIR reconciliation statement. The appellant explained non-recording of certain amounts, especially from M/s Suburban Developers, due to work execution timing. The CIT(A) upheld the addition but directed verification for the subsequent assessment year. The appellant argued for exclusion of certain amounts and consideration of profit margins only. The ITAT directed the AO to verify the subsequent year's recognition of sales and instructed to add only profit margins for unaccounted sales, not the entire amounts, where reconciliation discrepancies existed.

In conclusion, the ITAT partially allowed the appeal, directing the AO to verify specific details and consider profit margins for unaccounted sales. The judgment emphasized the importance of evidence to prove transaction genuineness and the need for accurate accounting practices to avoid discrepancies in sales recording.