2015 (12) TMI 758 - AT - Income Tax

Bogus Purchases - Purchase of goods from related parties - addition u/s 40A(3) cash paymetns - contention of the assessee is that the goods could not have been sold without purchasing the same and accordingly contended that the purchases were genuine - Held that - In the instant case, the initial explanations furnished by the assessee have been proved to be wrong. Subsequently, the assessee could have produced Shri Chirag Vora, who had supplied goods to the assessee, to prove the claim of purchases. Similarly, the assessee could not offer proper explanations with regard to the payments made against the purchases. The assessee also could not offer proper explanations as to why the amount due against purchases was shown as outstanding as at the year end. We notice that the assessee had purchased the goods in the months of May and June, 2008. However, the payments have been made from September, 2009 onwards, i.e., after expiry of about one and half years. It is also not shown that the assessee could avail credit period of one and half years under normal trade practice. Hence, we are of the view that the assessee has failed to establish the genuineness of purchases claimed to have been made from M/s Chirag Corporation. Since the assessee has claimed to have sold the goods and since the amount due to M/s Chirag Corporation was shown as outstanding as at the year end, we are of the view that the Ld CIT(A) was justified in drawing inference that the assessee could have purchased goods from third parties by making payment. In that kind of situation, the payments that could have been so made should be considered as unexplained investment. The facts and circumstances of the case, in our view, supports the inference so drawn by the Ld CIT(A). - Decided against assessee

Summary

Issues:
- Genuineness of purchases made from M/s Chirag Corporation
- Assessment of corresponding purchases as unexplained investment
- Violation of provisions of sec. 40A(3) of the Act

Analysis:
1. The appellant challenged the order by Ld CIT(A) regarding purchases from M/s Chirag Corporation, deemed bogus, leading to assessable unexplained investment. The AO's notice to verify purchases authenticity revealed closure of M/s Chirag Corporation in 2006. Despite claims of payment via cheques, investigations showed encashment by unrelated parties. Ld CIT(A) held the purchases as unexplained investment due to outstanding payments and lack of evidence on genuine purchases.

2. Ld CIT(A) enhanced the unexplained investment assessment based on the denial of transactions by M/s Chirag Corporation's proprietor and encashment by third parties. The appellant's failure to prove genuine purchases led to the addition. The appellant's argument of purchasing goods through Shri Chirag Vora was dismissed as the concern had ceased operations in 2006, contradicting the appellant's claims.

3. The appellate tribunal found the appellant's claims unsubstantiated, with the AO proving purchases and payments as bogus. Despite the appellant's argument that goods were sold, the tribunal emphasized the lack of evidence linking purchases to M/s Chirag Corporation. The onus was on the appellant to prove the purchases' legitimacy, which remained unfulfilled, leading to the confirmation of unexplained investment by Ld CIT(A).

4. The tribunal rejected the appellant's reliance on case laws, noting the distinctions in circumstances. Unlike the cited cases, the appellant failed to provide conclusive evidence of genuine purchases, leading to the dismissal of the appeal. The tribunal upheld Ld CIT(A)'s decision on the issue, confirming the unexplained investment assessment.

5. The tribunal dismissed the appeal, affirming Ld CIT(A)'s order, emphasizing the appellant's failure to establish the genuineness of purchases from M/s Chirag Corporation. The lack of evidence linking purchases to the claimed supplier and the delayed payments raised doubts, justifying the unexplained investment assessment. The tribunal's decision was based on the evidence presented and the failure to meet the burden of proof regarding the disputed purchases.