2016 (3) TMI 908 - AT - Income Tax

Addition u/s 69C - Held that - The 5 parties should be treated differently as these parties are undisputedly the non-suppliers of the raw materials needed for the contracts. It is evident from the fact that assessee itself offered such claims as unaccounted ones in the past. We cannot appreciate as to how these 5 parties, who do not have the capacity to supply the raw material, have got capacity to supply the same in the year under consideration. considering the background of the purchases from these parties, the onus is on the assessee to demonstrate that the purchases amounting to Rs ₹ 12,01,91,407/- are genuine and not the unexplained ones. CIT (A) is directed to adjudicate this issue of addition of ₹ 1,00,86,929/- made u/s 69C of the Act afresh. It was separately made by the AO by giving reasoning and by passing a speaking order on this issue, whereas the CIT (A) treated the same on par with other suppliers In summary, we are of the opinion, considering the orders of the Tribunal in many cases of additions involving the Sales Tax Department, the disclosure of blacklisted suppliers and when the Assessing Officer failed to discharge the onus as discussed above, the additions made u/s 69C amounting to ₹ 12,01,91,407/- out of total addition of ₹ 13.03 Crs is required to be deleted. CIT (A) is directed to examine this issue and pass a speaking order on the issues relating to the aspects of GP and the other independent addition of ₹ 1,00,86,929/- after gathering relevant facts from the survey statements, if any. CIT (A) shall grant a reasonable opportunity of being heard to the assessee as per the set principles of natural justice.

Issues Involved:
1. Deletion of addition made under Section 69C of the IT Act amounting to Rs. 13,02,78,336/- by treating the purchases as genuine.
2. Reliance on the judgment of CIT vs. Nikunj Eximp Enterprises Pvt Ltd.
3. Non-response to notices issued under Section 133(6) and returned undelivered.
4. Failure to produce parties from whom alleged bills were received.
5. Non-appreciation of findings by the Sales Tax Department regarding bogus purchases.
6. Acceptance of misleading submissions by the assessee regarding information provided by the Sales Tax Department.

Detailed Analysis:

1. Deletion of Addition under Section 69C:
The Revenue contested the deletion of Rs. 13,02,78,336/- added by the AO under Section 69C of the IT Act. The AO had treated the purchases as bogus based on the Sales Tax Department's list of defaulters. The CIT (A) deleted the addition, citing that the materials were supplied directly to the site, payments were made by cheque, and the contract works were completed satisfactorily. The Tribunal noted that the AO failed to discharge the onus of proving that the purchases were not genuine and did not verify the quality of the contract works. The Tribunal upheld the CIT (A)'s decision, emphasizing that mere suspicion is not a basis for addition.

2. Reliance on CIT vs. Nikunj Eximp Enterprises Pvt Ltd:
The Revenue argued that the CIT (A) erred in relying on the judgment of CIT vs. Nikunj Eximp Enterprises Pvt Ltd without appreciating the different facts of the case. The Tribunal found that the CIT (A) correctly applied the principles from the cited case, emphasizing that payments were made by cheque and the contract works were completed satisfactorily.

3. Non-response to Notices under Section 133(6):
The AO issued notices under Section 133(6) to the suppliers, which were returned undelivered. The CIT (A) held that the non-response from suppliers does not automatically render the purchases bogus, especially when the contract works were completed. The Tribunal agreed, stating that the AO did not make further investigations to verify the authenticity of the purchases.

4. Failure to Produce Parties:
The AO noted that the assessee failed to produce the parties from whom the alleged bills were received. The CIT (A) and the Tribunal found that the onus was on the AO to prove that the purchases were not genuine, which was not discharged. The Tribunal emphasized that the completion of contract works indicated the genuineness of the purchases.

5. Findings by the Sales Tax Department:
The AO relied on the Sales Tax Department's findings that listed the suppliers as defaulters. The CIT (A) and the Tribunal held that the AO should have conducted independent verification and not solely relied on the Sales Tax Department's list. The Tribunal noted that the AO failed to prove that the materials were not used in the contract works.

6. Acceptance of Misleading Submissions:
The Revenue argued that the CIT (A) accepted misleading submissions by the assessee regarding the non-availability of information from the Sales Tax Department. The Tribunal found that the CIT (A) correctly evaluated the evidence and submissions, concluding that the AO did not provide sufficient evidence to support the addition.

Separate Addition of Rs. 1,00,86,929/-:
The Tribunal noted that the CIT (A) did not specifically address the separate addition of Rs. 1,00,86,929/- related to five suppliers admitted as bogus by the assessee during a survey. The Tribunal directed the CIT (A) to re-examine this issue independently, considering the past admissions and the nature of the purchases.

Conclusion:
The Tribunal upheld the deletion of Rs. 12,01,91,407/- out of the total addition of Rs. 13.03 Crs, directing the CIT (A) to re-examine the separate addition of Rs. 1,00,86,929/- and the Gross Profit (GP) rate issue. The appeal was partly allowed for statistical purposes, emphasizing the need for a detailed and independent examination of the facts by the CIT (A).

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