2017 (12) TMI 1556 - AT - Income Tax

Disallowance of certain payments made on account of purchase - Held that - It is not in dispute that even on the date of survey the alleged blank bills did contain the quantity duly received by the assessee. Only the rates were not mentioned in those bills at the time of survey the reasons for which had already been elaborated. AR placed before us a summary sheet wherein if the alleged purchases are considered as ingenuine the same are to be removed from purchases then the same would result in negative stocks for the assessee which is not the case of the revenue at all. All these purchases are duly backed by corresponding exports. We find that the survey team only found excess stock at the time of survey. Hence there is no question of disbelieving the purchases made from National Enterprises by the assessee. We hold that the ld CIT-A had rightly deleted the addition on account of ingenuine purchases in the sum of from three parties. - Decided against revenue.

Summary

Issues Involved:
1. Justification of disallowance of certain payments made on account of purchases amounting to ?1,67,13,174/-.

Issue-wise Detailed Analysis:

1. Justification of Disallowance of Certain Payments:

The appellant, an individual engaged in manufacturing and trading of industrial leather gloves, filed a return for the Assessment Year 2010-11. A survey conducted on 26.03.2010 revealed that purchases and job work from certain parties were recorded on bills without amounts, which were entered later. The Assessing Officer (AO) classified these as blank bills and questioned the genuineness of purchases from three specific parties: National Enterprises (?76,15,142), Priyanka Enterprises (?43,00,960), and Shivam Enterprises (?47,97,072).

Findings by the AO:
- The AO noted discrepancies in bills and lower gross profit rates compared to the previous year.
- The AO disbelieved the purchases from the three parties due to the inability to verify the suppliers and the self-entered amounts on the bills.
- The AO made an addition of ?1,67,13,174/- to the assessee's income, treating the purchases as ingenuine.

Explanation by the Assessee:
- The assessee explained that it was a common practice to receive goods with challans and bills without amounts, which were later entered after quality checks and negotiations.
- The reduction in gross profit was attributed to the global recession, lower export orders, and fluctuations in foreign exchange rates.
- The assessee provided detailed records of purchases, stock registers, and ledger copies to support the genuineness of transactions.

Remand Proceedings:
- The Commissioner of Income Tax (Appeals) [CITA] directed the AO to conduct further inquiries.
- During remand, the AO examined Mr. Milan Maity, Proprietor of National Enterprises, who confirmed business transactions with the assessee and receipt of payments through account payee cheques.
- The AO's remand report suggested that the transactions were managed by the assessee, but the assessee provided a detailed rejoinder rebutting the AO's findings.

Decision by the CITA:
- The CITA observed that no quantitative discrepancies were found during the survey.
- The payments were made by cheques, and the suppliers confirmed the transactions.
- The CITA found no basis for treating the purchases as ingenuine and deleted the addition of ?1,67,13,174/-.

Appeal by Revenue:
- The Revenue contested the CITA's decision, arguing that the AO's findings were not properly considered.
- The Revenue's grounds of appeal included the alleged error in deleting the disallowance without appreciating the AO's remand report.

Tribunal's Analysis:
- The Tribunal noted that the survey team found no discrepancies in the quantity of goods recorded in the stock register.
- The rates were entered later due to negotiations and quality checks, and the purchases were supported by corresponding exports.
- The Tribunal found that the AO did not verify two of the three parties as directed by the CITA.
- The Tribunal concluded that the CITA rightly deleted the addition, as the purchases were genuine and backed by evidence.

Conclusion:
The Tribunal upheld the CITA's decision to delete the addition of ?1,67,13,174/- on account of ingenuine purchases, finding no infirmity in the CITA's order. The appeal by the Revenue was dismissed.

Order Pronounced:
The appeal of the Revenue was dismissed, and the order was pronounced in the Court on 08.12.2017.