2016 (12) TMI 51 - AT - Income Tax

Addition of bogus purchases of machinery - disallowance of depreciation - Held that - AO has proceeded to make the additions on the basis of suspicion that the purchases have been made from Hawala entry operators listed on the website of Sales Tax Department but strangely, no independent inquiry to corroborate the transaction has been made by the AO. The full information in the shape of invoice copy, confirmation etc. was available before AO yet no notice u/s 133(6) was issued to the supplier. The assessee also placed the photographs of Machinery in support of physical delivery and installation at the premises of the assessee, but the same were not verified by the lower authorities. On these facts, the assessee had duly discharged its initial onus to prove the purchases and onus was on revenue to confront the same. CIT(A) affirmed the same by noticing that the Sales Tax payment has been discharged by the assessee without seeking cross examination of the supplier before Sales Tax Department. But the proceedings before Sales Tax Department alone could not be the sole basis of addition in the hands of assessee before Income Tax Authorities. Further, as rightly observed by Ld. CIT(A), Section 69 had no applicability in the case of the assessee as the Machinery was duly recorded in the books of account. We are inclined to allow the appeal of the assessee and delete both the impugned addition - Decided in favour of assessee.

Summary

Issues:
Appeal against addition of bogus purchases of machinery and disallowance of depreciation.

Analysis:
The appeal pertains to the assessment year 2011-12 where the assessee challenged the addition of ?28,57,500 for bogus purchases of machinery and subsequent disallowance of depreciation of ?4,28,625. The Assessing Officer (AO) added the amount against the purchase of wire drawing machinery based on suspicions of Hawala transactions, despite the assessee providing relevant documents like bills, confirmations, and bank payment details. The AO failed to verify physical delivery of the machinery, leading to the addition under section 69 as unproved purchases. The First Appellate Authority upheld the addition, stating the assessee did not provide transport details or supplier confirmation letters. However, the assessee argued that the machinery was part of expansion programs, recorded in books, and VAT was duly paid. The ITAT Mumbai observed that the AO did not conduct independent inquiries and the assessee fulfilled the initial onus by providing necessary documents. The tribunal noted that section 69 did not apply as the machinery was recorded in the books. The appeal was allowed, and both additions were deleted.

The contention revolved around the applicability of section 69, with the assessee arguing that the machinery was recorded in the books and VAT was paid under duress. The Department argued that the assessee failed to produce a Fixed Asset Register as required by the Companies Act. The tribunal found that the AO's suspicions were not substantiated by independent inquiries, and the assessee had fulfilled the initial onus by providing relevant documents. The tribunal emphasized that section 69 did not apply due to proper recording in the books, leading to the deletion of the additions.

The tribunal highlighted the lack of independent inquiry by the AO despite the availability of relevant documents and photographs of the machinery. The tribunal noted that the Sales Tax payment alone could not justify the addition without further verification. It was observed that section 69 did not apply as the machinery was duly recorded in the books. Ultimately, the tribunal allowed the appeal, overturning both additions made by the AO.

In conclusion, the tribunal allowed the appeal, emphasizing the importance of fulfilling the initial onus of proof and conducting independent inquiries before making additions based on suspicions. The tribunal found that section 69 did not apply in this case, leading to the deletion of the additions.