2016 (11) TMI 793 - HC - Income Tax

Bogus purchases - proof of genuinity of expenditure - Held that - The books of account of the assessee, which were duly audited as per provisions of the Act, were found to be not questioned by the Assessing Officer. Although the Assessing Officer ordered deletion of the purchases made from the afore-referred to five creditors, he was found to have taken a self-contradictory stand of accepting the total declared sales of the assessee of over ₹ 2.17 crores, as also the expenses debited to the profit and loss account, which were based on the purchases ordered to be disallowed by him. Tribunal noted that the assessee had fully co-operated in the proceedings before the Assessing Officer by giving details of the disputed creditors, but such information was not acted upon by the Assessing Officer in accordance with the prescribed procedure and was wrongly brushed aside by him only on the ground that the same had been provided at a late stage of the proceedings. The Assessing Officer was found to have the necessary particulars regarding the above referred to five creditors, but for the reasons best known to him, he did not summon any of them. More importantly, the Tribunal noted that for all the purchases ordered to be disallowed by the Assessing Officer, payments had been made by the assessee through account payee cheques, which remained unquestioned by the Assessing Officer. The creditors, having been paid through account payee cheques could thus have easily been traced. - Decided in favour of assessee

Summary

Issues:
Challenge to the order of the Income-tax Appellate Tribunal regarding deletion of addition of ?1,33,29,548 made by the Assessing Officer on account of bogus purchases.

Analysis:
The appeal was filed invoking section 260A of the Income-tax Act, 1961, challenging the Tribunal's order for the assessment year 2007-08. The main question raised was whether the Tribunal was correct in law in upholding the decision to delete the addition of ?1,33,29,548 made by the Assessing Officer on account of bogus purchases when the assessee failed to prove the purchases' genuineness. The Assessing Officer disallowed purchases from five creditors as bogus, as they were not produced by the assessee despite opportunities. However, the Commissioner of Income-tax (Appeals) and the Tribunal found discrepancies in the Assessing Officer's approach. The assessee's sales and gross profit were declared, and the books of account were audited without any issues raised by the Assessing Officer. The Tribunal noted that the assessee cooperated by providing details of disputed creditors, but the Assessing Officer did not act on the information, leading to a contradictory stand. Payments to the creditors were made through account payee cheques, which were not questioned by the Assessing Officer, indicating traceability.

The Commissioner of Income-tax (Appeals) and the Tribunal upheld the assessee's contentions, concluding that no substantial question of law arose for interference. Therefore, the appeal was dismissed, leading to the dismissal of other questions raised, as they were dependent on the main issue.