2021 (3) TMI 1387 - AT - Income Tax

Bogus Purchases - CIT-A deleted the addition - HELD THAT - Hon ble High Court of Gujarat in the case of Nangalia Fabrics (P) Ltd, 2013 (8) TMI 80 - GUJARAT HIGH COURT held that where purchases were supported by bills, entries were made in books of account and payment was made by cheques, said purchases could not be held as bogus purchases. Purchases are supported by bills, there is entries in the books of account, payment was made by account payee cheques and assessee maintains quantitative details, and we also noted that Assessing officer did not find any inflation in purchase price. Besides, Assessing officer has failed to prove that payment made by assessee for these purchases came back to assessee in cash. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue is dismissed. Addition on account of unexplained, unsecured loan and disallowance of interest thereon - HELD THAT - Once the AO gets hold of the PAN of the lenders, it was his duty to ascertain from the AO of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. In the assessee s case department had accepted repayment of loan in subsequent year. The assessee provided the assessing officer, the new addresses of these parties during the assessment proceedings along with the confirmations, ledger account, capital account, bank statement, Income Tax Return and computation of income. All these persons are assessed to tax and the balance sheet filed by them reflect the unsecured loans given to the assessee. The transactions have been made through account payee cheques and the bank accounts have not been credited with any cash deposits. The loan amount has also been repaid during the subsequent assessment year. In view of the above facts, we note that assessee has discharged the onus of proof and therefore the addition made by the assessing officer and the consequent disallowance of the interest were rightly deleted by ld CIT(A). That being so, we decline to interfere in the order of the Ld. CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Deletion of addition on account of unexplained unsecured loans and disallowance of interest thereon.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:

The Revenue's primary grievance was the deletion of an addition of Rs. 1,14,71,603/- made on account of bogus purchases. The Assessing Officer (AO) had observed that the assessee showed total purchases of Rs. 8,27,50,188/- and sundry creditors for purchases amounting to Rs. 1,71,24,590/-. Notices under section 133(6) were issued to verify the genuineness of the purchases, particularly to Shri Chandresh Dalal and Smt. Damini Dalal. Both parties admitted in their sworn statements that they had no business dealings in textile items with the assessee. Despite opportunities, the assessee did not cross-examine these parties. The AO concluded that the purchases were inflated to reduce tax liability and added Rs. 1,14,71,603/- to the assessee’s income.

Upon appeal, the CIT(A) deleted the addition, emphasizing that the AO did not provide adequate opportunity for cross-examination and did not consider affidavits retracting the initial statements. The CIT(A) directed further inquiries, which confirmed that payments were made through account payee cheques and were genuine business transactions. The Tribunal upheld the CIT(A)'s decision, citing precedents like Nangalia Fabrics (P) Ltd. and M.K. Brothers, which supported the genuineness of purchases backed by proper documentation and payment methods.

2. Deletion of Addition on Account of Unexplained Unsecured Loans and Disallowance of Interest Thereon:

The AO had added Rs. 1,23,00,000/- to the assessee's income, citing unexplained unsecured loans and disallowance of Rs. 2,76,499/- as interest on these loans. The AO issued notices under section 133(6) to verify the loans, but many parties did not respond or were untraceable. Statements from some parties indicated that loans were given in cash and then returned via cheques. The AO concluded that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions.

The CIT(A) deleted the addition, noting that the assessee had provided detailed confirmations, bank statements, and other relevant documents. The CIT(A) emphasized that the AO did not pursue further inquiries despite new addresses being provided. The Tribunal agreed with the CIT(A), referencing cases like Ayachi Chandrashekhar Narsinhji and Ranchhod Jivabhai Nakhava, which highlighted the importance of verifying the lenders' tax returns and the fact that loans were repaid in subsequent years.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions on account of bogus purchases and unexplained unsecured loans. The Tribunal emphasized that the assessee had provided sufficient evidence to prove the genuineness of the transactions, and the AO had not adequately pursued further verification. The Tribunal’s decision was based on established legal principles and precedents that supported the assessee's claims.