2016 (4) TMI 29 - AT - Income Tax

Bogus purchases - disallowance sustained by Ld CIT(A) @ of 12.5% of the total purchases - Held that - As asked Ld. DR to point out if there was anything wrong in the findings of Ld. CIT(A) with regard to disallowance sustained by Ld CIT(A) @ of 12.5% of the total purchases. In response, nothing wrong was pointed out by Ld. DR in the reasoning given by Ld. CIT(A). It is noted that no adverse or incriminating material, whatsoever, has been brought on record by Ld AO in assessment proceedings or by Ld DR before us, to show that these purchases were bogus. The factual findings recorded by the Ld. CIT(A) that all the purchases and sales were properly backed up with quantitative re-conciliation, were not controverted by the Ld. DR. In view of the detailed findings recorded by the Ld. CIT(A) which remain uncontroverted, unchallenged and un-rebutted before us, and in view of peculiar facts of this case, we have no other option but to uphold the order of Ld CIT(A). - Decided against revenue.

Summary

Issues involved:
- Disallowance of purchases as unexplained
- Genuine purchases and sales correlation
- Disallowance percentage determination
- Disallowance deletion for specific party

Detailed Analysis:
1. Disallowance of purchases as unexplained:
The case involved appeals filed by the Revenue against orders of the Commissioner of Income Tax (Appeals) for assessment years 2005-06, 2006-07, and 2007-08. The Assessing Officer (AO) treated certain purchases as in-genuine and disallowed them, adding them to the assessee's income. The assessee contended that the purchases were genuine and submitted detailed evidence to support this claim. The Commissioner of Income Tax (Appeals) (CIT(A)) was not fully convinced by the assessee's argument regarding the genuineness of the purchases. However, the CIT(A) acknowledged the correlation between purchases and sales, stating that if sales were genuine, purchases must also be genuine. The CIT(A) referred to a similar judgment by the ITAT, Ahmadabad, and decided to restrict the disallowance of purchases to 12.5% of the total disallowed purchases, considering the quantum of disallowance in the case.

2. Genuine purchases and sales correlation:
The CIT(A) emphasized the importance of a genuine correlation between purchases and sales in the trading business. He noted that accepting sales without corresponding purchases would lead to an absurd situation. The CIT(A) highlighted that in the absence of purchases, sales could not have occurred. The CIT(A) analyzed the existence of bogus bills and the practice of purchasing from the open market in the steel and scrap trading business. He concluded that part of the purchases could be disallowed, but complete disallowance without concrete evidence was not justified. The CIT(A) also examined specific cases, such as purchases from M/s. Shree Karni Textiles, where complete bills and documentary evidence supported the genuineness of the purchases, leading to the deletion of the disallowance.

3. Disallowance percentage determination:
In line with the ITAT, Ahmadabad judgment and considering the facts of the case, the CIT(A) decided to restrict the disallowance of purchases to 12.5% of the total disallowed purchases. This determination was based on the high quantum of disallowance and the need for a balanced approach in assessing the genuineness of purchases in the absence of concrete evidence to prove otherwise.

4. Disallowance deletion for specific party:
The CIT(A) thoroughly examined the evidence provided for purchases from M/s. Shree Karni Textiles and found it to be sufficient to support the genuineness of the transactions. Despite the AO's objections based on technicalities like serially numbered bills, the CIT(A) upheld the deletion of the disallowance for purchases from this specific party. The Tribunal confirmed the CIT(A)'s decision, noting the absence of adverse material to prove the purchases as bogus and the unchallenged factual findings supporting the genuineness of the transactions.

In conclusion, the Tribunal dismissed all three appeals filed by the Revenue, upholding the CIT(A)'s orders based on the detailed analysis of the genuineness of purchases, the correlation between purchases and sales, and the appropriate percentage determination for disallowance in the absence of concrete evidence.