2018 (3) TMI 1685 - AT - Income Tax

Bogus purchases u/s 69C - Held that - The sales turnover achieved by the assessee has not been disputed by the revenue and the purchases were backed by invoices. At the same time, the assessee could not produce any confirmation from any of the suppliers despite being provided with adequate opportunity and notices issued u/s 133(6) elicited no response, which cast serious doubts on assessee s claim. It is also evident from perusal of Tax Audit Report that the assessee was not maintaining adequate stock records. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of Value Added Tax VAT against such bogus purchases. Since the assessee was engaged in trading activities, the goods must have been sourced by the assessee from somewhere else, the source of investment of which remained unexplained. - Decided partly in favour of assessee Addition on account of unexplained cash credit u/s 68 - Held that - Upon perusal of impugned order, it is noted that the assessee was not able to satisfy the three ingredients viz. identity, creditworthiness & genuineness against the same. Needless to say that the complete onus to prove the same rest on the assessee. Therefore, in the interest of justice, we remit the matter back to the file of Ld. AO with a direction to assessee to substantiate the same and demonstrate fulfillment of requirements of Section 68. Addition u/s 41(1) - Held that - Upon perusal of ledger extract, it is noted that there is no transaction by assessee with the said entity during impugned AY and AR has contended that the said amount is still outstanding and is subject matter of certain litigation / settlement. In view of the stated fact, the matter stands remitted back to the file of Ld. AO with a direction to the assessee to substantiate the fact that there was no remission or cessation of liability during impugned AY within the meaning of Section 41(1). Resultantly, this ground stands partly allowed for statistical purposes.

Summary

Issues:
1. Addition u/s 69C on purchases from suspicious parties
2. Disallowance u/s 37 on purchases treated as bogus
3. Addition u/s 68 on unexplained cash credit
4. Addition u/s 41 on cessation of liability

Analysis:

Issue 1: Addition u/s 69C on purchases from suspicious parties
The appeal contested the order confirming the addition under section 69C for purchases from suspicious parties identified by sales tax authorities. The Assessing Officer (AO) made additions due to alleged bogus purchases and unexplained cash credits. The Tribunal found that the assessee failed to prove the legitimacy of these purchases despite banking transactions. The Tribunal estimated the additions for alleged bogus purchases and balance purchases, partially allowing grounds 1 & 2.

Issue 2: Disallowance u/s 37 on purchases treated as bogus
The AO disallowed 50% of purchases as bogus, leading to a substantial amount. The Tribunal noted that the assessee's turnover was not disputed, but the lack of supplier confirmations raised doubts. The Tribunal estimated additions for bogus purchases and balance purchases, partially allowing the appeal on this issue.

Issue 3: Addition u/s 68 on unexplained cash credit
The unexplained cash credit from an entity was contested, arguing that payments were through banking channels. However, the Tribunal found the assessee failed to prove the identity, creditworthiness, and genuineness of the credit. The matter was remitted back to the AO for further substantiation, allowing this ground for statistical purposes.

Issue 4: Addition u/s 41 on cessation of liability
The addition under section 41 was partly sustained, involving liability against suspicious suppliers and an entity. The Tribunal remitted the matter back to the AO to substantiate the liability cessation, deleting the addition related to the entity with outstanding amounts subject to litigation. This ground was partly allowed for statistical purposes.

The Tribunal's decision resulted in the partial allowance of the assessee's appeal for statistical purposes, with the stay application becoming infructuous and dismissed. The detailed analysis of each issue provided clarity on the Tribunal's findings and the reasoning behind the decision.