2019 (8) TMI 1634 - AT - Income Tax

Bogus purchases u/s 69C - assessee filed copy of consumption register and stock register - When enquired, assessee pointed out that the matter can be restored back to the file of the AO for limited verification whether the assessee has consumed the material purchased from Mani Bhadra Sales Pvt. Ltd. and in that eventuality, the assessee would prove that these material of purchases were consumed or not - HELD THAT - Admittedly, the assessee is a manufacturer of analytical, environmental pollution monitoring instruments, Waste Water Treatment Applications, and services for monitoring and control of quality of gases, liquids, air and water. If, assessee made purchases from om Mani Bhadra Sales Pvt. Ltd, he has to show that the material purchased were consumed from the manufacturing of the assessee. In case, the assessee proves that these items are consumed, no disallowance can be made. In term of the above, the matter is restored back to the file of the AO. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
- Addition of alleged bogus purchases
- Burden of proof on the assessee
- Restoration of the matter to the file of the Assessing Officer

Analysis:
1. Addition of alleged bogus purchases: The appeal pertains to the addition of alleged bogus purchases made by the assessee from a specific party. The Assessing Officer (AO) added the amount of these purchases under section 69C of the Income-tax Act, 1961, based on information received from the Sales Tax Department. The AO required the assessee to provide relevant evidence to support the genuineness of these purchases. The assessee submitted the ledger account and payment details but failed to produce additional documents like octoroi receipt and transportation details. Consequently, the AO treated the entire amount of purchases as bogus. The Commissioner of Income Tax (Appeals) upheld this addition, noting that the assessee, being a contractor, could not prove the consumption of the items purchased.

2. Burden of proof on the assessee: During the appeal proceedings, the Departmental Representative reiterated that the assessee had not proven the consumption of the purchased items. However, the counsel for the assessee presented the consumption register and stock register, indicating that the material purchased was indeed consumed in the manufacturing process of the assessee's products. The counsel suggested that the matter be remanded to the AO for verification on whether the purchased material was utilized in the manufacturing process. The tribunal agreed with the assessee's argument, emphasizing that if it could be demonstrated that the purchased items were consumed in manufacturing, no disallowance should be made. As the assessee was engaged in manufacturing analytical and environmental instruments, the tribunal directed the matter to be sent back to the AO for further verification on consumption.

3. Restoration of the matter to the file of the Assessing Officer: Considering the submissions made by both parties and the nature of the assessee's business, the tribunal decided to restore the matter to the file of the Assessing Officer for limited verification on the consumption of the purchased material. The tribunal's decision to remand the case back to the AO was based on the principle that if the assessee could establish the utilization of the purchased items in its manufacturing process, the addition of the alleged bogus purchases would not be justified. Therefore, the appeal of the assessee was allowed for statistical purposes, and the matter was remitted to the AO for further examination.

In conclusion, the tribunal's decision highlighted the importance of the assessee's ability to prove the consumption of purchased items in cases involving alleged bogus purchases. The burden of proof rested on the assessee to demonstrate the utilization of the material in its manufacturing activities, and the tribunal's order focused on ensuring a fair verification process by remanding the matter back to the Assessing Officer for detailed examination.