2016 (4) TMI 956 - AT - Income Tax

Determination of income - bogus purchases - Held that - AO had disallowed an amount under the head unproved purchases, that in the rectification proceedings carried out on two occasions he reduced it to ₹ 7.54 Crores, that he had issued notices u/s.133(6)of the Act on test check basis, that during the appellate proceedings the FAA had forwarded certain documents to the AO and had called for his comments, that the successor AO alleged many an irregularities in the accounts maintained by the assessee, that the FAA has given categorical finding of fact about filing of confirmation letters of suppliers of fish along with details of their bank statement, copies of acknowledgment of income tax returns and reconciliation statement. He specifically mentioned that vide letters dated 27.2.13 and 23.9.2013 the AO had furnished all the necessary details. Before us, the DR on the basis of the assessment records, admitted that both the letters and the annextures to the letters were available on the file of the AO. In thses circumstances, we are of the opinion that the findings of facts recorded by the FAA with regard to the purchases in question present the true picture and the comments of the AO made in his letter 13.11.2013 were factually incorrect. It is also a fact that the AO had not rejected the books of accounts maintained by the assessee, nor has doubted the genuineness of the sales made by it. In the matter of Nikunj Exim Enterprises Pvt. Ltd. (2013 (1) TMI 88 - BOMBAY HIGH COURT), the Hon ble Bombay High Court has specifically held that in a case where sales are considered genuine, no addition, on account of bogus purchases, can be made. Considering the facts that all the details were furnished before the AO and that same were not considered by him and respectfully following the judgment of Nikunj Exim Enterprises Pvt. Ltd. (supra), we decide the effective Ground of appeal against the AO. - Decided in favour of assessee.

Summary

Issues:
1. Addition made on account of unconfirmed purchases.

Analysis:
The Assessing Officer (AO) completed the assessment under section 143(3) of the Act, determining the income of the assessee at Rs. 28.20 crores. The first ground of appeal challenged the deletion of the addition made on account of unconfirmed purchases amounting to Rs. 16,37,87,197. The AO found that purchases to the extent of Rs. 17.38 crores, in respect of 16 parties, had not been proved. Despite submissions from the assessee, the AO disallowed the purchases, alleging fictitious purchases to inflate expenditure. The First Appellate Authority (FAA) forwarded the material to the AO for comments. The AO maintained that purchases were not genuine and documents submitted were incomplete. However, the FAA held that the AO failed to provide valid reasons for disallowance and that the assessee had refuted all arguments with necessary evidence. The FAA directed the AO to delete the disallowance under purchase expenses.

The Departmental Representative (DR) supported the AO's order, claiming necessary documents were not produced. The Authorized Representative (AR) supported the FAA's order. The Tribunal found that the AO initially disallowed Rs. 17.38 crores for unproved purchases, later reducing it to Rs. 7.54 crores. The FAA's findings indicated the assessee had provided confirmation letters of suppliers, bank statements, and reconciliation statements. The Tribunal noted that the AO's comments were factually incorrect, and the books of accounts were not rejected. Citing the case of Nikunj Exim Enterprises Pvt. Ltd., the Tribunal held that when sales are genuine, no addition for bogus purchases can be made. As all details were furnished and not considered by the AO, the Tribunal dismissed the appeal filed by the AO.

In conclusion, the Tribunal upheld the FAA's decision to delete the disallowance made under the head of purchase expenses, dismissing the appeal filed by the AO.