2017 (10) TMI 45 - AT - Income Tax

Bogus purchase - survey conducted u/s. 133A - assessee did not produce stock register - CIT-A deleted the disallowance - Held that - The assessee filed relevant details in respect of all the three parties. The CIT-A examining the same found that Pradhan Tanners is registered in VAT and as such claimed refund from VAT Authorities. The payments were made through account payee cheques. We find that all the details i.e. stock register, claim of VAT payments, ledger copy and statements u/s. 133(6) of the Act were on record available before the AO/CIT-A. But, the AO proceeded to make addition on suspicion that the assessee did not produce stock register and the receipts showing purchases from the said three parties were bogus and incorrect. We find that the CIT-A examined all the details of said three parties and found satisfied that all the transactions are duly recorded in the books and disclosed the same in the return filed after the date of survey. We further find that all the transactions with the said parties were made through account payee cheques and the same were confirmed under 133(6) of the Act proceedings by the said parties. Therefore, we find no infirmity in the impugned order of the CIT-A and it is justified Addition on account of difference found in stock - difference of stock value as found as per books maintained by the assessee and stock found physically as on the date of survey - assessee explained such difference as the production entries were not recorded upto the date of survey and it was the practice to record the same at the time of sales - Held that - AO made the addition on account of difference between the stock found on physical verification and recorded in the regular books of account as on the date of survey, which is not justified. The assessee is running a 100% export oriented unit and no incriminating material was found to show that the assessee had suppressed sales of goods. We further find that the AO has not brought on record any material to find fault in the explanation offered by the assessee for such difference by way of reconciliation statement furnished by the assessee. We find that the assessee has been following the same method of maintaining of stocks as followed in the earlier years. We find that before the AO the assessee has provided every detail of raw materials and production thereon and practices adopted in their business, which were not accepted by the AO on the ground that different in stock found as per books and as on the date of survey. We find that the submissions of the assessee made before the AO and CIT-A were same and found reasonable and acceptable to the facts of the case. Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchase of ?49,01,811.
2. Deletion of addition on account of difference in stock of ?30,22,659.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Bogus Purchase of ?49,01,811

Facts and Arguments:
- The assessee, a manufacturer and 100% exporter of leather goods, was subjected to a survey u/s 133A on 29-01-2010.
- The AO found discrepancies in the stock register and identified purchases from M/s. Pradhan Tanners, Star Hide Company, and M/s. Lodwing Import as bogus, totaling ?49,01,811.
- The assessee argued that goods were received on a challan basis and later invoiced, and that all transactions were recorded and payments made via account payee cheques.
- The AO was not satisfied with the explanations and evidence provided, leading to the addition of ?49,01,811 to the assessee's income.

CIT-A’s Findings:
- The CIT-A noted that the AO’s findings were primarily based on the survey and that no independent inquiry was conducted to verify the genuineness of the purchases.
- The CIT-A emphasized that all transactions were recorded in the books, payments were made through account payee cheques, and there was no incriminating material found during the survey.
- The CIT-A concluded that there was no corroborative material to support the AO's addition and deleted the ?49,01,811 addition.

Tribunal’s Decision:
- The Tribunal upheld the CIT-A’s decision, noting that the assessee provided sufficient evidence, including stock registers, VAT returns, and confirmations from the suppliers.
- The Tribunal found no infirmity in the CIT-A’s order and dismissed the revenue's ground, maintaining that the addition was not justified.

Issue 2: Deletion of Addition on Account of Difference in Stock of ?30,22,659

Facts and Arguments:
- During scrutiny, the AO identified a difference in stock as per the books and physical verification, leading to an addition of ?30,22,659.
- The assessee explained that production entries were recorded at the end of the month, and the physical stock was reduced by quantities used in production.
- The AO did not accept this explanation, arguing that entries should be made daily.

CIT-A’s Findings:
- The CIT-A found the assessee’s explanation reasonable and noted that the practice of recording entries at the end of the month was consistent with past practices.
- The CIT-A concluded that the difference in stock was due to unrecorded sales rather than unrecorded purchases and that the AO’s addition was not justified.

Tribunal’s Decision:
- The Tribunal agreed with the CIT-A, noting that the AO did not bring any material evidence to counter the assessee’s explanation.
- The Tribunal found that the assessee’s method of maintaining stock records was consistent and that the AO’s addition was based on mere suspicion.
- The Tribunal upheld the CIT-A’s order, dismissing the revenue’s ground and deleting the addition of ?30,22,659.

Conclusion:
The Tribunal dismissed the appeal filed by the revenue, upholding the CIT-A’s deletion of additions on account of bogus purchases and stock differences. The Tribunal found that the AO’s additions were not supported by sufficient evidence and that the assessee’s explanations were reasonable and consistent with past practices.