2019 (5) TMI 1307 - AT - Income Tax

Bogus purchases - purchased materials for its construction/road contracts - huge turnover of assessee to the tune of ₹ 606.49 cr. which has been accepted by the AO - notice u/s. 133(6) issued all the parties have duly replied and had confirmed the purchases made by the assessee - HELD THAT - Without purchasing the construction materials, the assessee could not have constructed the roads etc. and since the assessee s turnover has been accepted in toto and when the parties M/s. SRDL as well as M/s. KIPL has given the confirmation along with the fact that payments were through banking channel and other documents as aforesaid, question of disallowance of the expenses claimed by the assessee does not arise. It goes without saying that entire contract receipt can never be the income and only the net income after deducting corresponding expenses can be taxed. Disallowances have been made only on suspicion; and suspicion howsoever strong cannot take the place of the proof. CIT(A) by giving partial relief to the assessee has recognized the genunity of purchases on the bills submitted, which goes against the theory of bogus purchases as held by the AO and cannot be sustained and, therefore, we are inclined to allow this ground of appeal of the assessee and confirm the action of the CIT(A) to the partial relief granted by him and direct the AO to allow claim of expenditure of the assessee incurred for purchases from M/s. SRDL and M/s. KIPL. Thus, the assessee succeeds and the revenue fails in this ground. Addition for payment made to M/s SREI Infrastructure Finance Ltd. - HELD THAT - We note that M/s. SREI is regularly filing its returns with the Registrar of Companies and the payments have been made by the assessee to M/s. SREI by account payee cheques or through RTGS. Taking note of all these facts and taking note of the fact that the inconsistency/mismatch highlighted by the AO has been also rightly addressed by the Ld. CIT(A) in the form of a chart placed at page 26 of his order and the Ld AR, pain stakingly took us through the Paper-book and explained to us and reconciled the figures before us. - Decided against revenue

Summary

Issues Involved:
1. Dismissal of Ground No. 1 of the assessee’s appeal.
2. Dispute regarding the genuineness of purchases from Sundha Road Developers Pvt. Ltd. (SRDL) and Khush Infratech Pvt. Ltd. (KIPL).
3. Deletion of addition for advisory service expenses paid to SREI Infrastructure Finance Ltd. (SREI).

Issue-wise Detailed Analysis:

1. Dismissal of Ground No. 1 of the Assessee’s Appeal:
The assessee did not press Ground No. 1, which was a legal issue. Consequently, it was dismissed.

2. Dispute Regarding Purchases from SRDL and KIPL:
The assessee and the revenue both appealed against the partial relief granted by the CIT(A) regarding the purchases from SRDL and KIPL. The AO had disallowed ?36,29,19,268/- as bogus expenses, suspecting the genuineness of the purchases. The AO issued notices under Section 133(6) of the Income-tax Act, 1961 to SRDL and KIPL, requesting various documents. Both companies submitted their income tax returns, ledger accounts, and confirmation of transactions. Despite these submissions, the AO considered the responses insufficient and treated the purchases as bogus due to the identical nature of the replies and the failure to produce directors for verification.

The CIT(A) provided partial relief by deleting the addition of ?6,66,210/- (SRDL) and ?3,73,690/- (KIPL), recognizing the genuineness of the purchases for the bills produced. The Tribunal noted that the assessee had a substantial turnover of ?606.49 crores, with a gross profit percentage of 19.67%, the highest in the past two years. The books of accounts were audited, and no defects were found. Payments were made through banking channels, and the parties confirmed the transactions. The Tribunal concluded that the disallowance was based on suspicion and allowed the assessee’s appeal, directing the AO to allow the expenditure claims for purchases from SRDL and KIPL.

3. Deletion of Addition for Advisory Service Expenses Paid to SREI:
The AO disallowed ?35,42,12,560/- paid to SREI for advisory services, suspecting the genuineness of the expenses due to incomplete details provided by SREI. The assessee submitted various documents, including ledger accounts, bills, agreements, and TDS certificates, to support the claim. The CIT(A) found that SREI confirmed providing advisory services and that payments were made by account payee cheques or RTGS. The CIT(A) also noted that SREI’s turnover exceeded ?3260 crores and that it had a reputable clientele, including government agencies. The CIT(A) reconciled the discrepancies pointed out by the AO and deleted the disallowance, finding the expenses genuine.

The Tribunal agreed with the CIT(A)’s findings, noting that the AO did not specify which details were missing. The Tribunal confirmed the CIT(A)’s order, dismissing the revenue’s appeal.

Conclusion:
The Tribunal allowed the assessee’s appeal regarding the genuineness of purchases from SRDL and KIPL and dismissed the revenue’s appeal concerning the advisory service expenses paid to SREI. The Tribunal emphasized that the disallowances were based on suspicion and that the assessee had provided sufficient evidence to support the claims. The order was pronounced in the open court on 10th May 2019.