2016 (1) TMI 645 - AT - Income Tax

Disallowance on account of bogus purchases - CIT(A) deleted the addition - Held that - Assessee has given the details of the address, which are available with it at the time of purchases and sales tax assessment records of that assessee which proves that assessee has not provided incorrect address. Further Purchase bills shows all the requisite details of the suppliers in the bills, in our view it is a contemporaneous confirmation in itself by suppliers. Ld. AO is of the view that as both the suppliers have PAN however both of them are not assessed to Income tax. On this aspect no fault can be found with the assessee. Further disproportionate increase in packing material machinery expenditure compared to sales is the first point, which should provoke AO to make further investigation , which has not been done. In absence of further investigation such as with sales tax authorities, bankers who have received the cheque on behalf of suppliers etc. additions/ disallowance made on basis of disproportionate increase become a mere statistical exercise , which cannot be sustained. Merely because notices u/s 133(6) could not be served on the suppliers, assessee- buyer cannot be put to an inconvenience of disallowance when he has provided the correct address of those parties. In view of this we confirm the order of CIT (A) in deleting the disallowance on account of bogus purchases - Decided against revenue.

Summary

Issues:
- Disallowance of expenses related to tools, consumables, machinery repair, and packing expenses
- Verification of purchases made from M/s. R. K. Enterprises and M/s. Vasu Trading Corporation

Analysis:
1. Disallowance of Expenses:
- The revenue appealed against the deletion of the disallowance of expenses amounting to Rs. 25,70,462 by the CIT(A).
- The Assessing Officer (AO) observed a significant rise in expenses related to tools, consumables, machinery repair, and packing expenses by the assessee company.
- Upon investigation, it was found that the firms from which the purchases were made, namely M/s. R. K. Enterprises and M/s. Vasu Trading Corporation, were non-traceable and lacked verifiable existence.
- The AO disallowed the expenses as the purchases were not related to raw materials for manufacturing, and the entities were deemed fictitious.
- Additionally, the AO made an additional income addition of Rs. 5,00,000 due to unreliable books of accounts and suspected undisclosed expenditures.

2. Verification of Purchases:
- The CIT(A) deleted the disallowance based on evidence submitted by the assessee, including ledger accounts, bills, material lists, bank statements, transporter affidavits, and sales tax details.
- The CIT(A) held that the assessee had discharged its onus of proving the genuineness of purchases, especially in the absence of contrary evidence or responses to notices under section 133(6).
- The revenue contended that without serving notices to the sellers under section 133(6), the purchases should be treated as bogus, which was reiterated by the Departmental Representative (DR).
- The appellant argued that the disallowance was unfounded and that the CIT(A) rightly deleted it based on the evidence provided.

3. Judgment and Conclusion:
- The Tribunal noted that the disallowance seemed to stem from a tax evasion petition without substantial evidence presented by the petitioner or the AO.
- The Tribunal found that the assessee had submitted overwhelming evidence to support the genuineness of the purchases, including various documents and records.
- Emphasizing the lack of concrete evidence against the assessee and the substantial evidence provided by the assessee, the Tribunal confirmed the CIT(A)'s decision to delete the disallowance of Rs. 25,70,462.
- The Tribunal highlighted the importance of thorough investigation and evidence before making disallowances, especially in cases where the assessee has provided substantial supporting documentation.

4. Outcome:
- The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of expenses related to tools, consumables, machinery repair, and packing expenses.
- The judgment was pronounced in the open court on 08.12.2015 by the members of the tribunal, Shri H.S. Sidhu (Judicial Member) and Shri Prashant Maharishi (Accountant Member).