2014 (6) TMI 741 - AT - Income Tax

Genuineness of purchases - Deletion of addition on account of unverifiable purchases Disallowance of fictitious purchases - Held that - The assessee was able to prove the genuineness of two items of purchase of diamonds from Surat parties - The assessee has filed necessary documentary evidences in support of its claims of purchase in the form of purchase invoices, evidences of payment through banking channels during the year and outstanding amounts in subsequent year, confirmations from the transacting parties and relevant extracts of the bank statements of the transacting parties, books of accounts and stock statements - the purchases of diamond from M/s. Sanjay Enterprises, Surat by the assessee was accepted in scrutiny assessment framed u/s 143(3) of the Act - The sales figures of the assessee have not been disturbed by the department. The CIT(A) has recorded that the AO has not verified the records of the transacting parties which are available in his own Range and the details of which was provided by the assessee - even during the course of remand proceedings, the AO has not verified the facts either from the IT records or by issue of summons u/s 131 of the Act to the transacting parties - there is no mistake in the order of the CIT(A) in holding that the assessee has been able to establish genuineness of the purchases from the two Surat parties Decided against Revenue.

Summary

Issues:
Appeal against CIT(A)'s order for assessment year 2007-2008 regarding deletion of addition on unverifiable purchases.

Analysis:
The Revenue appealed against the CIT(A)'s decision to delete the addition made by the Assessing Officer (AO) on account of unverifiable purchases amounting to Rs. 90,04,927. The Revenue contended that the CIT(A) erred in holding the disallowance of fictitious purchases as erroneous and dismissing relevant facts and evidence regarding the non-genuineness of purchase claims. The Revenue also argued that the CIT(A) relied on irrelevant materials and theoretical premises regarding the purchases' genuineness. Furthermore, the Revenue questioned the CIT(A)'s decision to hold that the assessee had discharged its onus despite failing to provide addresses of the purchase parties for verification.

The Departmental Representative (DR) argued that the assessee failed to prove the genuineness of purchases related to diamonds from specific parties in Surat. The DR emphasized that mere payment through account payee cheques was insufficient to establish the purchases' genuineness, citing a previous ITAT decision. On the other hand, the assessee's counsel defended the genuineness of the purchases, citing documentary evidence provided to the AO and the CIT(A). The counsel highlighted that the AO did not verify the records of the transacting parties, even though details were available, and the purchases from one of the parties were accepted in the previous assessment year.

After reviewing the submissions and orders, the ITAT found that the assessee successfully proved the genuineness of the diamond purchases from the Surat parties. The ITAT noted that the assessee submitted various documentary evidence supporting the purchase claims, including invoices, payment evidence, confirmations from parties, and bank statements. Additionally, the AO did not verify the transacting parties' records, despite availability and details provided by the assessee. Given these facts, the ITAT upheld the CIT(A)'s decision, confirming the genuineness of the purchases and dismissing the Revenue's appeal.

In conclusion, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order regarding the genuineness of the purchases from the Surat parties. The ITAT emphasized the assessee's ability to establish the legitimacy of the transactions through substantial documentary evidence, while also highlighting the AO's failure to conduct necessary verifications during the assessment process.