2017 (9) TMI 1400 - AT - Income Tax

Bogus purchases addition - CIT (A) deleted the addition on the ground that when the said expenditure is embedded in the work-in-progress the same will be considered for computing the income of the assessee as per POC method - Held that - From the totality of the facts and circumstances and the orders passed by AO in AY 2011-12 it is apparently clear that though the expenditure claimed by the assessee does not have any bearing on its income / profit during AY 2011-12 as the same have been accounted for as work-in-progress but the same will certainly effect the income of the assessee in the next assessment year as well as at the conclusion of project. Though the AO has made a discreet enquiry through Inspector as to the existence of the firm from whom the assessee alleged to have purchased the raw material but at the same time AO categorically recorded the observations that the assessee has failed to produce such parties inspite of repeated opportunities given to them but no such adequate opportunity allegedly provided by the AO to the assessee is visible on the record particularly when examined in the light of the fact that ld. CIT (A) has categorically mentioned in the impugned order that the assessee has filed all the requisite evidences again without highlighting the said piece of evidence. Even the assessee has not been confronted with the report of Income-tax Inspector dated 23.11.2012 & 26.02.2013 relied upon by the AO. So the impugned order is liable to be set aside to remand the same to the file of the AO for de novo assessment who shall provide adequate opportunity to the assessee to prove the alleged bogus purchases. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Disputed addition of bogus purchases made by the assessee company.
2. Challenge to assessment proceedings and notices issued by the assessing officer.

Issue 1: Disputed addition of bogus purchases made by the assessee company

The Revenue filed appeals seeking to set aside the order passed by the Commissioner of Income-tax for the Assessment Year 2011-12, disputing the deletion of additions made by the Assessing Officer on account of alleged bogus purchases capitalized by the assessee company. The Assessing Officer found certain purchases to be bogus and unexplained, reducing them from the closing work-in-progress. The AO concluded that a group of companies, including the assessee, engaged in transactions to inflate construction costs. The ld. CIT (A) allowed the appeals, leading the Revenue to challenge the orders before the Tribunal. The AO conducted discreet inquiries to verify the existence of firms from whom raw materials were allegedly purchased, concluding that the transactions were not genuine. However, the ld. CIT (A) deleted the additions, citing the embedded nature of the expenditure in work-in-progress for income computation. The Tribunal noted discrepancies in the AO's observations and the lack of adequate opportunity for the assessee to prove the transactions, remanding the matter for de novo assessment.

Issue 2: Challenge to assessment proceedings and notices

The Objectors challenged the assessment orders for the Assessment Year 2011-12, contending that the initiation of proceedings and notices by the assessing officer did not comply with legal provisions. The Objectors argued that the assessment orders should be quashed due to procedural irregularities. The Tribunal did not delve deeply into this issue in the judgment, focusing primarily on the disputed additions related to bogus purchases made by the assessee company.

In conclusion, the judgment addressed the disputed additions of bogus purchases by the assessee company, highlighting discrepancies in the AO's inquiries and the ld. CIT (A)'s decision. The Tribunal emphasized the need for a fair opportunity for the assessee to substantiate the transactions, leading to the remand of the matter for fresh assessment. The judgment did not extensively discuss the challenges to assessment proceedings and notices raised by the Objectors, as the primary focus was on the substantive issue of disputed additions.