2017 (3) TMI 26 - AT - Income Tax

Addition made u/s. 69C in respect of bogus purchases - Held that - AO had not doubted sales (exports) made by the assessee, that he had accepted the book results shown by the assessee, that the payment made by the assessee through banking channels is not in doubt, that there is no evidence of making unexplained investment. Except issuing notice u/s. 133(6) to the suppliers of the goods, the AO has not made any further investigation. The assessee had produced before him the delivery challans, purchase bills and evidence of payment made through banking channels. Thus, the assessee had discharged the initial burden. It was duty of the AO to rebut the evidences produced by the assessee. But, he did not bring anything on record. In our opinion, the FAA had rightly held that the provisions of section 69C cannot be invoked for bogus purchases. In these circumstances, we are of the opinion that his order does not suffer from any legal or factual infirmity. The cases relied upon by him support the view taken by us. Confirming the order of the FAA, we decide the effective ground of appeal against the AO.

Summary

Issues:
1. Addition made under section 69C for bogus purchases of ?3.15 crores.

Analysis:
The Assessing Officer (AO) completed the assessment of the individual assessee, who had declared total income at ?31.18 lacs, determining his income at ?3.46 crores. The key issue in the appeal was the addition made under section 69C of the Act for alleged bogus purchases amounting to ?3.15 crores. The AO received information that the assessee had made purchases from parties listed as hawala dealers by the Sales Tax Department. Despite the assessee providing ledger accounts and bank statements, the AO deemed the purchases as non-genuine, adding the amount to the total income.

The assessee challenged the AO's decision before the first appellate authority (FAA), citing various cases to support the genuineness of the purchases. The FAA held that the onus to prove the genuineness of the expenditure lay with the assessee, and by providing bills and delivery challans, the assessee had discharged this onus. The FAA emphasized that payments were made through account payee cheques, purchases were reflected in stock reconciliation, and the AO had not doubted the sales or GP ratio. The FAA concluded that no addition could be made under section 69C.

Upon further appeal, the ITAT Mumbai upheld the FAA's decision, noting that the AO had not challenged the exports, accepted book results, and acknowledged banking channel payments. The ITAT found that the assessee had fulfilled the initial burden of proof, and the AO failed to counter the evidence presented. Consequently, the ITAT affirmed that section 69C did not apply to the alleged bogus purchases, dismissing the AO's appeal.

In conclusion, the ITAT Mumbai dismissed the appeal filed by the AO, upholding the FAA's decision to reject the addition under section 69C for the alleged bogus purchases. The tribunal found no legal or factual flaws in the FAA's order and ruled in favor of the assessee, emphasizing the importance of fulfilling the burden of proof in such cases.