2015 (11) TMI 1821 - HC - Income Tax

Bogus purchases - Estimation of income - Decline in net profit shown - purchases were made from a Firm whose registration was cancelled - HELD THAT - Purchases were made from M/s Riddhi Siddhi Enterprises in spite of the fact that Registration of the said firm had been cancelled - no evidence to indicate that M/s Riddhi Siddhi Enterprises had provided accommodation bills to the assessee in respect of the materials purchased and consequently, concluded that there was no evidence to show that bogus purchases were made by the assessee. Appellate authority further found that sales made by the assessee had been accepted by the assessing officer. Once the sales have been accepted, it necessary falls that the assessee had also made purchases and it cannot, therefore, be held that bogus purchases were made. Consequently, the mere fact that purchases were made from a Firm whose registration was cancelled does not mean that bogus purchase were made by the assessee or that the Firm was a non-existing Firm. Deletion was rightly made by the first appellate authority. - Decided in favour of assessee.

Summary

Issues:
Assessment of net profit rate for the year, Addition of purchases from a Firm with cancelled registration, Deletion of addition towards purchases, Justification for deleting the addition.

Analysis:
The judgment by the Allahabad High Court pertains to the assessment year 2009-10 of an assessee involved in the iron and steel business. The assessee declared a slight decline in the net profit rate compared to the preceding year. The assessing officer added a significant amount to the income of the assessee, alleging that purchases from a Firm with cancelled registration were bogus transactions. The assessee's appeal led to the deletion of this addition, which was upheld by the Tribunal.

Upon review, the High Court found that the appellate authority correctly deleted the addition as there was no evidence to prove that the purchases were bogus. The appellate authority noted that while the registration of the Firm was cancelled, there was no indication that the purchases were accommodation bills. Additionally, since the sales made by the assessee were accepted, it was inferred that genuine purchases were also made, despite the cancelled registration of the supplier Firm.

The High Court emphasized that the mere cancellation of registration does not automatically render the purchases as bogus. As the sales were accepted, it was deemed logical that purchases were also genuine. The Court concluded that the first appellate authority's decision to delete the addition was appropriate based on factual findings, and no substantial questions of law arose for consideration. Consequently, the appeal by the revenue was dismissed.

In summary, the judgment highlights the importance of factual evidence in determining the genuineness of transactions, emphasizing that the cancellation of registration alone does not establish purchases as bogus. The decision underscores the need for a comprehensive assessment based on concrete evidence to avoid unjust additions to the income of an assessee.