2016 (1) TMI 355 - AT - Income Tax

Disallowance of non-genuine Purchases transactions from two parties - Held that - In this case, the assessee has tried to prove the genuineness of the purchases, firstly, by producing the confirmation of the accounts from the said parties filed earlier at the stage of the assessment proceedings; secondly, all the details of payment made through account payee cheques duly debited from the account of the assessee and credited to the accounts of the suppliers were shown; and lastly, in case of one supplier, the assessee had also filed a copy of its bank statement to show the corresponding credit entries. Thus, under these facts and circumstances the entire purchase amount cannot be added as income from undisclosed sources. However, in such cases, at the most, the gross profit element on such purchases could be added, as contended by the ld. counsel. Accordingly, we direct the AO to apply the gross profit of 21.29% for the purchase aggregating to ₹ 52,36,013/-. After verifying the contention of the assessee that, actual purchase transaction from Gausiya Sea Foods was only ₹ 16,82,212/-. Thus, the addition would be restricted on gross profit on such purchases. - Decided partly in favour of assessee

Summary

Issues:
1. Disallowance of alleged non-genuine purchase transactions from two parties.
2. Discrepancy in the amount of purchase made from a specific party.
3. Burden of proof on the assessee to establish the genuineness of transactions.

Issue 1 - Disallowance of Non-Genuine Purchase Transactions:
The appellant challenged the disallowance of Rs. 62,39,059 by the Assessing Officer, claiming the purchases were non-genuine. The CIT(A) upheld the disallowance, stating the appellant failed to prove the transactions' genuineness. The appellant argued that due to the nature of their business, suppliers did not provide documents directly, but the appellant prepared purchase documents based on agreed quantities. The appellant provided purchase vouchers, confirmations, and bank statements to support the transactions. The Tribunal noted that most purchases were made through account payee cheques and supported by bills and vouchers. The Tribunal found no evidence of purchases made outside the books of account or from undisclosed sources. Therefore, the addition was restricted to the gross profit element on the purchases, directing the AO to apply a gross profit rate of 21.29% on the disputed purchases.

Issue 2 - Discrepancy in Purchase Amount:
Regarding the discrepancy in the purchase amount from a specific party, the appellant clarified that the actual purchase from Gausiya Sea Foods was Rs. 16,82,212 and not Rs. 26,85,258 as recorded by the AO. The Tribunal accepted this clarification and directed the AO to consider the correct purchase amount while calculating the addition based on gross profit.

Issue 3 - Burden of Proof on the Assessee:
The Tribunal emphasized that the burden of proof lay on the assessee to establish the genuineness of transactions. Despite the inability to provide new addresses for suppliers, the Tribunal found the appellant had provided sufficient evidence such as confirmations, bank statements, and payment details to support the purchases. The Tribunal concluded that purchases made through account payee cheques from disclosed sources in the books of accounts could not be treated as non-genuine. The AO was directed to consider the gross profit element on the purchases rather than adding the entire amount as undisclosed income or expenditure.

In conclusion, the Tribunal partially allowed the appeal, restricting the addition to the gross profit element on the disputed purchases. The decision highlighted the importance of providing supporting evidence to establish the genuineness of transactions and the application of a gross profit rate in cases of doubt regarding purchases.