2020 (7) TMI 836 - AT - Income Tax

Bogus purchase - information of Sales Tax Department and consequential disallowance of freight and lorry hire charges - HELD THAT - No reason to come to a conclusion that the purchases in this case of an intermediary are fake or bogus. We find that all the parties in question are registered with the VAT Authorities and that payments have been made through cheques. Except for the fact that the assessee could not be found by the Inspector of the Income Tax Department for service of notice and the mention by the Sales tax Authorities that there is mis-match in the numbers of trucks and that some are non-transport trucks, the revenue has no evidence whatsoever to support this disallowance. When one to one reconciliation of purchase and sales is made by the assessee, no disallowance can be made. Quantitative reconciliation of stock is not challenged by the Revenue. Hence, in view of the above discussion, we delete the addition made on account of bogus purchases. Consequently, the disallowance made on account of transport payments are also deleted. Rejection of the books of the accounts by the AO - HELD THAT - We find that the AO his order rejected the books of accounts for the sole reason that he came to the conclusion that the purchases were bogus. As we have held otherwise, the rejection of books of accounts by the Assessing Officer is bad in law. Even otherwise, we find that though the Assessing Officer rejected the books of accounts, the entire assessment has been based on these very books of accounts only. Thus we allow Ground No. 4 of the assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Sustaining the addition under the head "bogus purchase."
3. Consequential disallowance of freight and lorry hire charges.
4. Rejection of books of accounts.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee's appeal was time-barred by 80 days. After hearing both sides, the tribunal condoned the delay, acknowledging that the assessee was prevented by sufficient cause from filing the appeal on time.

2. Sustaining the Addition under the Head "Bogus Purchase":
The AO had added Rs. 19,40,23,375/- to the assessee's income, claiming the purchases were bogus based on information from the Sales Tax Department and other authorities. The AO argued that the assessee failed to prove the genuineness of transactions and could not produce suppliers for verification. The AO also noted discrepancies such as the use of non-transport vehicles and incorrect vehicle numbers.

The assessee countered by providing detailed reconciliations of purchases and sales, maintaining that the transactions were genuine and supported by proper documentation. The tribunal found that the basic premise of the AO's addition was flawed, as the Sales Tax Department's findings did not conclusively prove that the purchases were bogus. Instead, the discrepancies were mainly due to incorrect vehicle numbers.

The tribunal noted that the assessee acted as an intermediary, with suppliers directly delivering goods to ultimate purchasers. Given that the sales were accepted as genuine, the tribunal saw no reason to treat the purchases as bogus. The tribunal referenced similar cases where additions based on such allegations were not upheld, emphasizing that both limbs of a transaction (purchase and sale) must be treated consistently.

3. Consequential Disallowance of Freight and Lorry Hire Charges:
The AO disallowed Rs. 23,09,639/- in freight charges proportionate to the alleged bogus purchases. The tribunal, having found the purchases to be genuine, also deleted this disallowance. The tribunal highlighted that the freight charges were primarily paid to the Railways and were supported by proper documentation.

4. Rejection of Books of Accounts:
The AO had rejected the assessee's books of accounts under Section 145(3) of the Income Tax Act, citing the alleged bogus purchases. The tribunal found this rejection to be unjustified, as the entire assessment was based on the same books of accounts. Since the tribunal held that the purchases were genuine, the rejection of the books of accounts was deemed bad in law.

Conclusion:
The tribunal allowed the assessee's appeal, deleting the additions made for bogus purchases and the consequential disallowance of freight charges. The rejection of the books of accounts was also overturned, as it was based on the flawed premise of bogus purchases. The tribunal's decision was pronounced after considering the delays caused by the COVID-19 pandemic.