2015 (3) TMI 970 - AT - Income Tax

Bogus purchases - Invocation of s. 145(3) - Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee - Held that - The assessee's account books are as kept and maintained in the regular course of its business, while the enquiry by the Revenue was only much later, in, as it appears, February, 2009, followed by notice u/s.133(6) on 05.03.2009. The transaction/s with MA, as per the assessee's books of account, occurred during the period 15.07.2006 to 04.09.2006, prior to the demise of its main person, i.e., Shri P. B. Maniar, on 16.09.2006. The plea of the successor being not, therefore, aware of the transactions, which are generally not recorded in accounts is not without merit. The assessee may have, as stated in the assessment order not reflected the name of MA in the details of sales made in excess of ₹ 1 lac each during the year, as furnished in the assessment proceedings. However, that could not hold against the assessee or lead to the inference of the purchases being bogus. If so, the sales thereto, also appearing in the same account (of MA), must equally be regarded as bogus. In fact, the objection is to no moment, as the assessee's books, including stock records, are matched, showing the purchase from and sale of goods to MA, so that notwithstanding the said non-reflection, the said transactions stood duly recorded in its accounts. The assessee does not gain in any manner from the said non-reflection; its accounts clearly showing the goods 'purchased' from as having been subsequently 'sold' to, MA, i.e., in the same quantity and at the same rate. In other words, the recording of the said transactions exhibits the authenticity of the said account, as it could have otherwise kept the same off its books, as did MA. The aspect of 'sales' to MA, an integral part of the assessee's explanation in support of its accounts, has been completely ignored by the Revenue. It, in our view, in acting in the manner it has, acted parochially and with a prejudiced state of mind.there is nothing to doubt the genuineness of the impugned entries of purchase. Accordingly, we set aside the invocation of s. 145(3) qua the assessee's accounts as also direct the deletion of the disallowance effected. - Decided in favour of assessee

Summary

Issues Involved:
Assessment under section 143(3) of the Income Tax Act, 1961 - Disallowance of purchases as bogus - Appeal against the order of the Commissioner of Income Tax (Appeals) - Verification of purchases made by the assessee - Loan transactions between distributors - Rejection of assessee's books of account under section 145(3) - Genuineness of transactions with the supplier - Non-reflection of supplier's name in sales details - Assessment of authenticity of account entries.

Detailed Analysis:

1. Assessment under Section 143(3) of the Income Tax Act:
The appeal was directed against the order of the Commissioner of Income Tax (Appeals) dismissing the assessee's appeal contesting its assessment under section 143(3) of the Income Tax Act for the assessment year 2007-08. The issue revolved around the disallowance of purchases as bogus and the rejection of the assessee's books of account under section 145(3).

2. Verification of Purchases and Loan Transactions:
The assessee, a firm trading in telecom products, claimed purchases from two suppliers, including Mahanagar Telephone Nigam Ltd. (MTNL) and Maniar Associates (MA). The authenticity of these purchases was questioned, especially regarding the transactions with MA, which MA denied. The assessee explained these transactions as loan transactions between distributors, recorded in stock registers but not in financial accounts. The tribunal analyzed the nature of these transactions and the evidence provided by the assessee.

3. Rejection of Books of Account under Section 145(3):
The Assessing Officer rejected the assessee's books of account under section 145(3) and made a disallowance of the purchases from MA, considering them as bogus. The tribunal examined the evidentiary value of the assessee's books of account and the rebuttal of entries by the Revenue. It emphasized the need for verification and validation of the transactions to determine their genuineness.

4. Non-Reflection of Supplier's Name in Sales Details:
The Revenue raised concerns about the non-reflection of MA's name in the sales details exceeding a certain amount. However, the tribunal highlighted that the absence of reflection did not invalidate the transactions, as the purchases and sales to MA were recorded in the assessee's accounts, indicating the authenticity of the transactions.

5. Assessment of Authenticity of Account Entries:
After considering the facts and circumstances of the case, the tribunal found no reason to doubt the genuineness of the purchases from MA. It set aside the invocation of section 145(3) and directed the deletion of the disallowance. The tribunal concluded that the assessee's appeal was allowed based on the authenticity of the account entries and the explanation provided regarding the loan transactions between distributors.

This detailed analysis of the judgment provides insights into the issues involved, the tribunal's examination of the evidence and legal provisions, and the ultimate decision in favor of the assessee based on the authenticity and validation of the transactions in question.