2019 (8) TMI 992 - AT - Income Tax

Addition u/s 68 - unexplained Cash credit - HELD THAT - The assessee could not explain as to reasons for the said creditor to have extended interest free unsecured loans . The assessee also did not explained as to when these loans were finally paid off/squared by the assessee. CIT(A) merely accepted confirmation filed by the assessee and did not made any enquiry/verification himself to come to conclusion whether all the ingredients of Section 68 were satisfied cumulatively. Powers of ld. CIT(A) are co-terminus with powers of the AO. In our considered view, the assessee has not fully discharged its onus u/s 68 completely and cumulatively as to all the three ingredients and in our considered view , this matter need to be restored to the file of the AO for fresh adjudication wherein one more opportunity is granted to the assessee to adduce evidences to substantiate satisfaction of all the three ingredients of Section 68. The assessee is directed to file necessary evidences before the AO in set aside proceedings to discharge its onus/burden as is cast u/s 68 - AO is directed to give proper and adequate opportunity of being heard to the assessee in denovo assessment proceedings. Bogus purchases - AO made additions to the tune of 100% of aforesaid alleged bogus purchases to the income of the assessee - HELD THAT - The incriminating information was received from Sales Tax Department as well Investigation Wing, Mumbai that these parties are indulging in issuing bogus purchases invoices without supplying any material physically wherein these parties have deposed before Maharashtra Sales Tax Authorities that they are indulging in issuing bogus invoices and the assessee is stated to be beneficiary of these alleged bogus purchases. The assessee could not produce these parties before AO as well learned CIT(A) for verification, enquiry and recording of their statement . The notices issued u/s 133(6) by the AO to these parties for verification returned unserved. The proof of transportation and delivery of the material was not filed by the assessee. The consumption/utilisation details of the material is also not filed. In this case, the material under these invoices was intended to be utilised for executing contracts with Municipalities of Greater Mumbai / Thane by assessee as sub-contractor. The onus was very heavy on assessee to prove consumption/utilisation of material, which it could not discharge as no consumption/utilisation details were furnished. Appellate order passed by learned CIT(A) cannot be upheld/sustained and we set aside the appellate order passed by learned CIT(A) and upheld/sustain the assessment order passed by the AO as it is a fit case for sustaining additions to the tune of 100% of alleged bogus purchases - Decided in favour of revenue

Summary

Issues Involved:
1. Addition of ?1,90,95,000/- under Section 68 of the Income-tax Act, 1961 for unexplained cash credits.
2. Addition of ?3,25,98,680/- for alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Addition of ?1,90,95,000/- under Section 68 for Unexplained Cash Credits:

The Revenue's first grievance pertains to the addition of ?1,90,95,000/- made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961, which was later deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO observed that the assessee received unsecured loans totaling ?1,90,95,000/- from eight parties but failed to provide adequate confirmations and details for verification. The AO added this amount as unexplained cash credits. The CIT(A) admitted additional evidence under Rule 46A and deleted the addition, stating that the assessee had provided sufficient evidence, including PAN numbers and confirmations, to prove the genuineness of the transactions.

Upon appeal, the tribunal found that the assessee had not fully discharged its onus under Section 68. The tribunal noted discrepancies such as the unilateral conversion of share application money into unsecured loans and the lack of due diligence or valuation reports. The tribunal restored the matter to the AO for fresh adjudication, directing the assessee to provide necessary evidence to substantiate the genuineness of the transactions.

2. Addition of ?3,25,98,680/- for Alleged Bogus Purchases:

The second issue involves the addition of ?3,25,98,680/- for alleged bogus purchases. The AO received information from the Investigation Wing and Sales Tax Authorities that the assessee was a beneficiary of bogus purchases from twelve parties. The AO observed several discrepancies, such as identical fonts on invoices, lack of delivery challans, and non-existent suppliers, leading to the conclusion that the purchases were bogus. Consequently, the AO disallowed 100% of the alleged bogus purchases.

The CIT(A) partially agreed with the AO but reduced the disallowance to 12.5% of the alleged bogus purchases, estimating the profit embedded in these transactions. The CIT(A) noted that while the suppliers were non-existent, the assessee had provided evidence of transportation and consumption of the materials.

The tribunal, however, upheld the AO's decision to disallow 100% of the alleged bogus purchases. The tribunal emphasized that the assessee failed to provide substantial evidence of the genuineness of the transactions, such as delivery proof and consumption details. The tribunal found that the pattern of transactions, including non-payment to suppliers and identical invoice formats, indicated that these were merely accommodation entries.

Conclusion:

The tribunal restored the issue of unexplained cash credits to the AO for fresh adjudication, requiring the assessee to provide comprehensive evidence. On the issue of bogus purchases, the tribunal upheld the AO's decision to disallow 100% of the purchases, concluding that the transactions were not genuine. The appeal of the Revenue was allowed, and the tribunal directed the AO to reassess the matter in accordance with the tribunal's observations.