2019 (3) TMI 1129 - AT - Income Tax

Addition of bogus purchases - reopening u/s 147 - return processed u/s 143 (1) - information received from CIT Central Circle II, New Delhi, enclosing letter of ACIT Central Circle -10, which contained the list of the persons to whom bogus purchases / accommodation entries were provided by three parties assessee being one of the beneficiary - proof of gross profit shown by the assessee during the year was less as compared to earlier or subsequent years - HELD THAT - From the perusal of the bills as placed in the paper book, it is seen that assessee has shown purchase of steel scraps, aluminium scraps, brass scraps and in these bills, lorry / truck number for delivery has also been mentioned which is even evident from the scanned copy of one particular bill at page 69 in the impugned order. The purchases admittedly have been made through account payee cheque and the source of the purchases are from the books of account as it is not the case of AO that purchases from any party is outside books of account. Assessee has debited higher amount for the purchase which in fact has purchased the same material and quantity at a lesser amount, thereby suppressing the gross profit. Under these circumstances any addition at all which could be made, is by enhancing the Gross Profit on such purchases. Nowhere there is a finding or whisper either by the AO or CIT (A) that the gross profit shown by the assessee during the year was less as compared to earlier or subsequent years or there is any material to show that gross profit has been low during the year. If all the entries in the trading account including the quantitative tally of purchases, opening stock, sales and closing stock are found to be correct and no discrepancy has been found, then no addition on account of unexplained purchases can be made, because nowhere it has been found that assessee has made purchases outside the books. The entire finding of the CIT (A) hinges upon the fact that there was material indicating purchase under consideration are bogus without even appreciating that if the source of purchases are from the books and through account payee cheque, then how such purchases can be treated as un accounted. Since gross profit rate and gross profit has been accepted including the trading account then no such addition can be made - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening under Section 147.
2. Addition of ?12,56,068/- on account of bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147:
The assessee challenged the reopening of the assessment under Section 147, arguing that the 'reasons recorded' were not in accordance with the law. The Assessing Officer (AO) had reopened the case based on information received from CIT Central Circle II, New Delhi, which included a list of individuals involved in bogus purchases provided by certain entities. The AO issued a notice under Section 148 for reopening the case. The CIT (A) dismissed the assessee’s objection, holding that there was a clear connection between the material available and the escapement of income, and that the AO had a prima facie 'reason to believe' based on such material. The Tribunal, however, did not make a conclusive determination on this issue as it became academic after the merits of the addition were addressed.

2. Addition of ?12,56,068/- on Account of Bogus Purchases:
The AO made an addition of ?12,56,068/- under Section 69C, treating purchases from three entities as bogus based on statements from individuals involved in providing accommodation entries. The assessee argued that the purchases were genuine, supported by DVAT registration and TIN numbers, and that payments were made by cheque. The CIT (A) upheld the AO’s addition, stating that the onus was on the assessee to prove the genuineness of the purchases after being confronted with incriminating material.

The Tribunal considered the rival submissions and the relevant findings. It noted that the assessee maintained a quantitative stock register, purchase and sale bills, and regular books of account. The AO accepted the figures of opening stock, purchases, sales, closing stock, and gross profit, including the quantitative tally in the trading account. The Tribunal found that the purchases were made through account payee cheques and were recorded in the books of account, and there was no discrepancy in the quantitative tally of stock.

The Tribunal emphasized that if the quantitative details of stock, purchases, and sales are accepted, it is difficult to hold that some purchases recorded in the books are unexplained. It noted that the purchases were supported by bills mentioning delivery details and that the source of the purchases was from the books of account. The Tribunal concluded that no addition could be made under Section 69C for unexplained purchases when the quantitative tally and gross profit were accepted. Therefore, the addition made by the AO was deleted, and the assessee’s appeal was allowed.

Conclusion:
The Tribunal allowed the assessee’s appeal on merits, deleting the addition of ?12,56,068/- on account of bogus purchases. Consequently, the issue of the validity of reopening under Section 147 was kept open as it became academic. The order was pronounced in the open court on 28th January 2019.