2018 (6) TMI 740 - AT - Income Tax

Additions made on account of bogus purchase - it was confirmed by the seller party no transaction were made during the relevant financial year - Held that - question of rejecting the purchases simply because he did not receive any information, when notices were issued under section 133(6) of the Act, from parties, cannot be the sole reason to make the addition. It is to be kept in mind that the amount of sales by itself cannot represent the income of the assessee. With regard to the purchase made from the two parties i.e. M/s IRIS Computers Ltd & M/s lndia Cyber Learning (P) Ltd. It was submitted before us that the invoices were raised to Government of Bihar on the last day of FY 2009-10 - but in the subsequent year neither purchase has been booked nor sale has been booked - ledgers of sundry creditors along with purchase details for F.Y 2009-10 is filed and placed on record and from the documentary evidence, we note that from the list of sundry creditors as on 31.03.2011 i.e. the subsequent year, the above two companies do not figure in the list. Same is the case with the list of Sundry Debtor as on 31.01.2011 wherein the two companies do not figure - while looking from another angle, we do not find that there is any loss for the Revenue because in any case the purchases and sales in respect of computers have to be allowed in the subsequent Assessment Year and the rate of tax being the same, it will be tax neutral so there is no prejudice to revenue - hence the issue is hereby upheld and the ground raised by the Revenue is dismissed.

Summary

Issues:
1. Addition of bogus purchase amounting to ?2,76,18,000.
2. Validity of the assessing officer's decision to treat purchases as bogus expenditure.

Analysis:
1. The appeal pertains to the Assessment Year 2010-11 and challenges the deletion of an addition of ?2,76,18,000 as bogus purchase made by the Revenue. The assessing officer had treated the purchases as bogus based on the denial of transactions by the seller parties during the relevant financial year. The assessee contended that purchases were made in the previous financial year, and sales were booked in the current financial year. The Tribunal noted that without purchases, there could be no sales, and the AO's sole reason for making the addition was the lack of information from the seller parties. However, the Tribunal emphasized that the realization of excess over the cost incurred forms part of the profit, and without evidence of undisclosed investment in purchasing goods, the purchases could not be treated as income in the relevant assessment year.

2. The assessee had shown total purchases of ?3,00,15,868, out of which ?2,38,68,000 was related to one party and ?37,50,000 to another. The seller parties denied transactions with the assessee during the relevant year, leading the AO to add back ?2,76,18,000 as bogus purchases. During the appellate stage, the assessee provided evidence that purchases were made in the previous year, and sales were booked in the current year. The Tribunal observed that all evidence and books of account were produced before the AO for verification during the remand stage. It was explained that purchases were booked as per instructions, and the corresponding sales were recorded. The Tribunal found no loss to the Revenue as the purchases and sales would be allowed in the subsequent assessment year, making it tax-neutral. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

3. The Tribunal concluded that there was no prejudice to the Revenue, and the purchases and sales in respect of computers would be allowed in the subsequent assessment year. Therefore, the Tribunal declined to interfere with the CIT(A)'s order, upholding the decision to dismiss the Revenue's appeal. The appeal filed by the Revenue was ultimately dismissed, and the order was pronounced in open court on 06/06/2018.