2016 (8) TMI 1476 - HC - Income Tax

Bogus purchases - addition u/s 69C - Tribunal deleted the addition - HELD THAT - Tribunal recorded a finding of fact that though the two suppliers, viz. M/s. P. Jitendra Co. and M/s. P.R. Diamonds, from whom the assessee had purchased polished diamonds, had stated that they had issued bogus bills to the assessee, no evidence was brought on record to prove that the assessee had received cash back from the said parties. The assessee maintained books of accounts, which have been audited. The purchases made from these two parties have been duly entered in the stock record. The books of the said two suppliers have also been audited and the sales made to the assessee find place in their books of accounts as well. Further, the sales made by the assessee have not been rejected by the Assessing Officer and payment towards the exports have been received by the assessee through banking channel. AO has made disallowance u/s.69C of the Act. However, in our opinion, the same is erroneous since Section 69C is applicable to cases where the source of expenditure has not been explained by assessee. Even if we take the plea that assessee has incurred the expenditure, it is a case where the source of expenditure is duly explained as the payment for the purchases has been made by the assessee out of its bank account. Therefore, the Tribunal rightly concluded that provisions of Section 69C of the Act will not apply to the case on hand. - Decided against revenue.

Summary

Issues:
1. Addition of bogus purchases
2. Perversity of the Tribunal's order
3. Burden of proof regarding diamond purchase

Analysis:

Issue 1: Addition of Bogus Purchases
The appellant, a registered firm engaged in diamond export, filed its income tax return for A.Y. 2001-02, declaring total income. The Assessing Officer later assessed the income after certain additions. The Tribunal found that although suppliers had issued bogus bills, no evidence showed the appellant received cash back. The appellant's books were audited, purchases were recorded, suppliers' books were audited, and sales to the appellant were accounted for. The Tribunal noted that payments were received through banking channels. The Assessing Officer disallowed under Section 69C, but the Court held the expenditure source was explained as payments were made from the appellant's bank account. Thus, the Tribunal's decision on the addition of bogus purchases was upheld.

Issue 2: Perversity of the Tribunal's Order
The Tribunal's order was challenged by the Revenue, alleging it was contrary to the evidence. However, the Court found the Tribunal's decision reasonable. The Tribunal's conclusion that the appellant proved the diamond purchase was upheld, as the burden of proof was discharged. The Court agreed with the Tribunal and CIT(A)'s findings, stating that the Tribunal's decision was justified and dismissing the appeal.

Issue 3: Burden of Proof Regarding Diamond Purchase
The Tribunal concluded that the appellant had proven the purchase of diamonds valued at a specific amount. The Court agreed with this finding, emphasizing that the burden of proof was satisfied. The Tribunal's decision was upheld, and the appeal was dismissed without costs.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal regarding the addition of bogus purchases and confirming the appellant's discharge of the burden of proof for the diamond purchase.