2017 (11) TMI 1654 - AT - Income Tax

Bogus purchases - Held that - When the sales figures shown by the assessee has been accepted in totality the entire purchases made by the assessee cannot be held it to be bogus since it is common knowledge that sales of goods cannot taken place without purchase of goods in the first place In the light of the evidences adduced to prove the genuineness of the transactions and when the fact remains that the sales has been accepted by the Assessing Officer in totality the action of the Assessing Officer to disallow the entire purchases and goods made from M/s. Vikash Iron & Steel Co. Ltd. on the basis of a general statement (without naming the assessee) on the ground it indulged in giving fake bills for commission and that too without the adverse statement being tested on the touch stone of cross-examination cannot stand the scrutiny of law and has to fall and therefore in the light of the aforesaid discussion we are inclined to delete the disallowance - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment order under sections 143(3)/147 of the Income Tax Act, 1961.
2. Validity of recorded reasons for belief of income escaping assessment.
3. Justification of addition on account of alleged bogus purchase.
4. Application of gross profit rate on alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order:
The assessee challenged the assessment order dated 05.03.2013 framed under sections 143(3)/147, arguing it was void and nullity as there were no recorded reasons to believe that income chargeable to tax had escaped assessment. However, this ground was not pressed during the hearing.

2. Validity of Recorded Reasons:
The assessee contended that the recorded reasons were invalid and improper, thus making the assessment framed on 05.03.2013 bad in the eye of law. This ground was also not pursued during the hearing.

3. Justification of Addition on Account of Alleged Bogus Purchase:
The primary grievance was the addition of ?1,52,40,253/- made by the Assessing Officer (AO) on account of alleged bogus purchases from M/s. Vikash Iron & Steels Pvt. Ltd. (VISPL). A survey under section 133A revealed that VISPL raised fake sale bills against the assessee company. The Director of VISPL, in his statement, admitted that transactions were mostly paper transactions without actual movement of goods, and he received commissions for providing accommodation entries.

The AO, based on this statement, doubted the genuineness of transactions and reopened the assessment. The assessee argued that the statement was general in nature and not all transactions were bogus. They provided purchase ledgers, payment proofs via account payee cheques, and sales ledgers to substantiate the genuineness of the transactions. Despite this, the AO disallowed the entire purchase amount.

4. Application of Gross Profit Rate on Alleged Bogus Purchases:
The assessee suggested that even if the purchases were considered bogus, the gross profit rate should be applied to such purchases. However, this was not the primary contention during the hearing.

Tribunal's Findings:
The Tribunal noted that the entire disallowance was based on the Director's statement recorded during the survey, which was not corroborated by other evidence. The AO did not provide the assessee an opportunity to cross-examine the Director of VISPL, which is a violation of the principle of natural justice as established in the case of Andaman Timber Industries vs. CCE.

The Tribunal emphasized that the AO accepted the sales figures as genuine, which implies that the purchases should also be genuine since sales cannot occur without corresponding purchases. The assessee provided substantial evidence, including purchase bills, challans, weight receipts, bank statements, and a tax audit report, supporting the genuineness of the transactions. The AO failed to investigate these documents further or summon the Director for cross-examination.

Conclusion:
The Tribunal concluded that without cross-examining the Director and solely relying on his general statement, the AO's disallowance of the entire purchase amount was not justified. The Tribunal allowed the appeal, deleting the disallowance made by the AO and confirmed by the CIT(A).

Result:
The appeal filed by the assessee was allowed, and the disallowance of ?1,52,40,253/- was deleted. The order was pronounced in the open court on 29/11/2017.

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