2018 (9) TMI 1888 - AT - Income Tax

Bogus purchases - information received from Maharashtra VAT Department - HELD THAT - Sales made by the assessee were never disbelieved. Assessee could not have effected the sales without corresponding purchases. If the Revenue disbelieved the purchases the corresponding quantity ought have been reduced from the sales also. AO fell in error in disbelieving the purchases while accepting the quantity of plastic granules sold by the assessee, that too without rejecting the books of the assessee. It is not disputed that assessee had produced the bills for all purchases and these were paid through banking channel. Just because the notices to vendors of the assessee came back unservd, the purchases could not have been disbelieved. A businessman who purchases goods in the normal course of his business is not expected to keep a track of the address of all the vendors who supplied goods to him. There is nothing on record to substantiate the inference drawn by the lower authorities that part of the sales accounted by the assessee was only to bring in his unaccounted income to the main stream. The existence of unaccounted income was not evidenced by any record. We are of the opinion that purchases could not have been considered as bogus. Disallowances made for the impugned assessment years stand deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of purchases considered bogus.
2. Reopening of assessments for the impugned years.
3. Verification of the actual purchase amount from M/s. Amee Enterprises for the assessment year 2010-2011.

Detailed Analysis:

1. Addition of Purchases Considered Bogus:
The assessee, operating a proprietorship concern in plastic granules, had filed returns declaring income for the assessment years 2009-2010, 2010-2011, and 2011-2012. These returns were initially processed under section 143(1) of the Income Tax Act, 1961. However, the assessments were reopened on the grounds that some purchases were considered bogus based on information from the Maharashtra VAT Department. The Assessing Officer (AO) issued notices under section 133(6) to the vendors, but these were returned unserved, leading the AO to conclude that the purchases were bogus, resulting in substantial additions to the assessee's income for the respective years.

The assessee argued that the purchases were genuine, supported by invoices, delivery challans, and VAT payments, and made through banking channels. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the payments through account payee cheques were not sufficient to prove the transactions as genuine, and the assessee failed to substantiate the purchases with necessary evidence.

However, the Tribunal noted that the AO did not find any defects in the books of accounts or reject them. The tax audit report provided quantitative details of the stock, purchases, and sales, which were not disputed by the AO. The Tribunal held that the assessee could not have effected sales without corresponding purchases, and the purchases could not be disbelieved merely because the notices to vendors were returned unserved. The Tribunal cited similar cases where purchases were disbelieved, and it was held that the AO was not justified in making additions without conducting independent inquiries. Consequently, the Tribunal deleted the disallowances made for the impugned assessment years, allowing the related grounds.

2. Reopening of Assessments:
The assessee also challenged the reopening of assessments for the impugned years. However, the CIT(A) found the reopening to be in accordance with the law, as the original assessments were done under section 143(1). The Tribunal noted that the assessee did not press any grounds assailing the reopening, and thus, these grounds were dismissed as not pressed.

3. Verification of Actual Purchase Amount from M/s. Amee Enterprises:
For the assessment year 2010-2011, the assessee contended that the actual purchase amount from M/s. Amee Enterprises was ?35,50,178/- and not ?3,55,01,784/-. The CIT(A) directed the AO to verify this claim. The Tribunal acknowledged that the AO had passed a rectification order for the year 2010-2011, reducing the disallowance from ?6,77,26,701/- to ?3,57,75,095/- considering the error in the purchase amount from M/s. Amee Enterprises.

Conclusion:
The Tribunal concluded that the purchases could not have been considered bogus and deleted the disallowances for the impugned assessment years. The appeals of the assessee were partly allowed, with the grounds related to reopening dismissed as not pressed. The order was pronounced on September 12, 2018, at Chennai.