2016 (10) TMI 890 - AT - Income Tax

Bogus purchases - information obtained from the Sales Tax Department relied upon - Held that - The assessee itself had filed conformations for purchases from two of the three parties, copies of purchase bills, copies of bank account statements to show payment for the same were through banking channels, copies of stock register to show that the material from these parties had been received, etc. to establish the genuineness of these purchases. It is a fact on record that the AO has not doubted the sales effected by the assessee and therefore, it is in order to conclude that without corresponding purchases being effected, the assessee would not have made sales. AO has not brought on record any material evidence to conclusively prove that the purchases are bogus. Mere reliance by the AO on information obtained from the Sales Tax Department or the statement of a third party before the Sales Tax Department, without affording the assessee adequate opportunity to cross examine that person or the fact that these parties did not respond to notice under section 133(6) of the Act would not suffice to treat the purchases as bogus and make the addition. If the AO doubted the genuineness of this said purchases, it was incumbent upon him to cause further inquiries in the matter to ascertain the genuineness or otherwise of the transactions. Without causing any further enquires in respect of the said purchases, the AO cannot make the addition under section 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statement/affidavit of a third party, Shri Rajendra Dodhiwala wherein the assessee was not named or afforded opportunity of cross examination of that person and issue of notices under section 133(6) of the Act. - Decided in favour of assessee

Summary

Issues involved:
1. Treatment of purchases as unexplained expenditure under section 69C of the Income Tax Act.
2. Reliance on information from the Sales Tax Department and third-party statements.
3. Adequacy of evidence provided by the assessee to prove the genuineness of purchases.
4. Justification for deleting the addition of unexplained expenditure by the CIT(A).
5. Evaluation of the AO's actions in treating purchases as bogus without sufficient evidence.

Detailed Analysis:
1. The case involved the assessment of purchases made by the assessee for the assessment year 2010-11, totaling ?3,75,87,293. The Assessing Officer treated these purchases as unexplained expenditure under section 69C of the Income Tax Act due to suspicions raised by information from the Sales Tax Department regarding certain dealers providing accommodation entries. The AO disregarded the evidence provided by the assessee, leading to the determination of the assessee's income at ?4,29,80,520.

2. The CIT(A) reviewed the case and found that the AO's decision was primarily based on information from the Sales Tax Department and a statement from a third party unrelated to the assessee. The CIT(A) observed that the assessee had submitted documentary evidence, including purchase bills, bank statements, and stock registers, to prove the genuineness of the purchases. The CIT(A) concluded that the AO had not provided sufficient evidence to deem the purchases as bogus and deleted the addition of unexplained expenditure.

3. The Revenue appealed against the CIT(A)'s decision, arguing that the purchases should be considered bogus as the parties could not be traced, and lorry receipts were not produced. However, the assessee contended that the evidence presented was substantial, including banking transactions and confirmations from suppliers. The assessee highlighted similar cases where such additions were deleted by the Bombay High Court and other Tribunal benches.

4. The Tribunal analyzed the evidence and arguments presented by both parties. It noted that the AO had not conducted further inquiries to verify the genuineness of the purchases and solely relied on external information and statements. The Tribunal agreed with the CIT(A)'s decision, emphasizing that the assessee had provided ample evidence to support the authenticity of the purchases through proper banking channels. The Tribunal cited relevant legal precedents to support its decision and upheld the CIT(A)'s order to delete the addition of unexplained expenditure.

5. Ultimately, the Tribunal dismissed the Revenue's appeal for the assessment year 2010-11, affirming the CIT(A)'s decision to delete the addition of unexplained expenditure and highlighting the inadequacy of evidence provided by the AO to support the claim of bogus purchases.