2017 (12) TMI 1412 - AT - Income Tax

Addition on account of bogus liabilities - Held that - The existence of the liability appearing in the name of M/s. Subir Shellac Enterprise thus was duly established by the assessee by filing the relevant documentary evidence and the addition made by the Assessing Officer by treating the same as bogus liability merely on the basis of reply received from the said party in response to the letter issued under section 133(6), wherein the amount of purchases alone was confirmed in the said party, in our opinion, was rightly deleted by the ld. CIT(Appeals). We, therefore, uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 1 of the Revenue s appeal. Addition on account of cash purchases by treating the same as unproved - Held that - No discrepancy whatsoever was pointed out by the Assessing Officer in the books of account of the assessee, the ld. CIT(Appeals) deleted the addition of ₹ 20,00,000/- made by the Assessing Officer by way of disallowance of cash purchases holding the same to be not maintainable. At the time of hearing before us, the ld. D.R. has not been able to rebut or controvert the findings of fact recorded by the ld. CIT(Appeals) while giving relief to the assessee on this issue. We, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No. 2 of the Revenue s appeal. Disallowance of alleged cash purchases - Held that - Some disallowance on estimated basis is required to be made on account of the said purchases for the unverifiable element involved therein. Having regard to all the relevant facts of the case including the fact that the goods purchased by the assessee are in the nature of forest produce and the assessee has finally declared substantial loss, we are of the view that it would be fair and reasonable to make such disallowance to the extent of 10% of the purchases. We accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and sustain the disallowance of ₹ 90,60,200/- made by the Assessing Officer to the extent of ₹ 9,06,020/-. Ground No. 3 of the Revenue s appeal is thus partly allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of addition on account of bogus liabilities (?32,72,600/-).
3. Deletion of addition on account of disallowance of alleged cash purchases (?20,00,000/-).
4. Deletion of addition on account of bogus purchases (?90,60,200/-).

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue filed an application to condone a 12-day delay in filing the appeal, citing logistical challenges and staff leaves during festival periods. The Tribunal found the reasons sufficient and condoned the delay as the assessee raised no objection. Consequently, the appeal was disposed of on its merits.

2. Deletion of Addition on Account of Bogus Liabilities:
The Assessing Officer (AO) added ?32,72,600/- to the income of the assessee, treating it as a bogus liability due to insufficient confirmation from Subir Shellac Enterprise. The assessee explained that the closing balance was carried forward from the previous year and provided evidence of payments made in the subsequent year. The CIT(A) deleted the addition, noting that the AO accepted purchases but not the closing balance without further verification. The Tribunal upheld the CIT(A)'s decision, stating that the liability was adequately evidenced by the assessee.

3. Deletion of Addition on Account of Disallowance of Alleged Cash Purchases:
The AO disallowed ?20,00,000/- of cash purchases from M/s. Shankar Prasad Gupta & Co., as the assessee failed to provide sufficient proof. The CIT(A) found that the payments were made against purchases, not exceeding ?20,000/- each day, and no discrepancies were noted in the assessee's books. The Tribunal upheld the CIT(A)'s decision, noting that the AO accepted cheque payments but arbitrarily disallowed cash payments without valid reasons.

4. Deletion of Addition on Account of Bogus Purchases:
The AO found discrepancies in three purchase bills totaling ?90,60,200/- and treated them as bogus due to identical serial numbers, formats, and other anomalies. The CIT(A) deleted the addition, noting that the goods were exported, payments were made through banking channels, and sales were genuine. The Tribunal, however, acknowledged the discrepancies and anomalies pointed out by the AO. It modified the CIT(A)'s order, sustaining a disallowance of 10% of the purchases, amounting to ?9,06,020/-, due to unverifiable elements.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, condoning the delay in filing and modifying the deletion of the addition on account of bogus purchases, while upholding the CIT(A)'s decisions on bogus liabilities and cash purchases. The final order was pronounced on December 22, 2017.