2019 (9) TMI 916 - AT - Income Tax

Bogus purchase of timber - As argued that the sellers did not issue any sale bill - HELD THAT - In our opinion, it is the duty of the assessee to produce all the bills and vouchers in support of purchase entries found in the books of account. In the absence of the details, the Assessing Officer considered it as bogus purchase. Even before us, the assessee was not able to lead any evidence regarding the genuineness of the purchasers, though the burden is on the assessee to prove the genuineness of the transactions. In view of these, we are inclined to confirm the addition made towards bogus purchases. Accordingly, this ground raised by the assessee is dismissed. Addition u/s 40A(3) - cash purchase in excess of ₹ 20,000/- - HELD THAT - Before us, the assessee filed receipts from parties confirming the receipt of cash payments and also confirming that they do not have bank accounts. DR objected to this contention of the assessee and contended that the receipts filed by the assessee are stereotype and also they do not have dates. DR further submitted that these receipts were not produced before the AO for verification. In our opinion, these receipts need to be verified at the ends of the AO. Hence, in the interest of justice and equity, we remit this issue to the A.O. to examine it afresh and if the assessee is able to prove the reasonable cause for making such cash payments, the same may be deleted. Further the amount paid towards bogus purchases by way of cash cannot be once again considered u/s 40A(3) of the I.T.Act, which amounts to double addition. To that extent the assessee gets relief. With these observations, the issue is remitted to the A.O. for fresh consideration. Stock difference - difference between value of the stock hypothecated to the bank to avail loan and the value of the stock found reflected in the trading account - HELD THAT - In the present case, the stock is hypothecated to the bank and the bank official physically verified the stock on 20.03.2013 and thus there was a difference between the stock value shown in the stock statement furnished to the bank and the value of stock shown by the assessee in his books of account as on 31.03.2013 at ₹ 94,77,500. Even after giving opportunity to the assessee, the assessee was not able to reconcile the stock difference. In our opinion, when there is a difference in the value of stock shown in the statement given to the bank and the books of account of the assessee, the assessee is bound to explain the differences. In the absence of any explanation furnished by the assessee, the CIT(A) is justified in confirming the addition made by the Assessing Officer. Case followed COIMBATORE SPINNING AND WEAVING CO. LIMITED VERSUS COMMISSIONER OF INCOME-TAX. 1973 (3) TMI 27 - MADRAS HIGH COURT - Decided against assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of ?73,34,227 as bogus purchase.
3. Disallowance of ?2,81,63,141 as cash purchase in excess of ?20,000 under Section 40A(3).
4. Stock difference of ?94,77,500 based on bank statement versus audited financial statement.

Issue-wise Detailed Analysis:

Condonation of Delay:
The assessee filed the appeal with a delay of 3 days, which was supported by an affidavit explaining the reasons for the delay. The Tribunal found sufficient cause for the delay and condoned it, proceeding to dispose of the appeal on merits.

Disallowance of ?73,34,227 as Bogus Purchase:
The Assessing Officer (AO) disallowed ?73,34,227 from the total timber purchase of ?11,38,66,879, as the assessee failed to provide names, addresses, and supporting bills/vouchers for these purchases. The AO treated these as bogus purchases and taxed them accordingly. The CIT(A) upheld this addition, noting the absence of credible evidence to prove the genuineness of the purchases. The Tribunal agreed, emphasizing that the burden of proof lies on the assessee to substantiate the genuineness of transactions. Since the assessee failed to do so, the addition was confirmed.

Disallowance of ?2,81,63,141 as Cash Purchase in Excess of ?20,000:
The AO invoked Section 40A(3) of the Income Tax Act, disallowing ?2,81,63,141 for cash purchases exceeding ?20,000, citing the lack of satisfactory explanation and supporting bills/vouchers. The CIT(A) confirmed this disallowance, stating that the assessee did not establish compelling circumstances for cash payments or prove that the payments were made to small vendors without banking facilities. The Tribunal remitted the issue back to the AO for fresh examination, allowing the assessee to prove the reasonable cause for such cash payments. It was noted that any amount already considered as bogus purchase should not be double-counted under Section 40A(3).

Stock Difference of ?94,77,500:
The AO identified a stock difference of ?94,77,500 between the stock value reported to the bank and the value in the trading account as on 31.03.2013. The AO based this on the bank's physical verification report. The CIT(A) upheld this addition, rejecting the assessee's explanation that the bank statement was a projected figure for availing higher loan limits. The Tribunal supported the CIT(A)'s decision, referencing the Madras High Court's judgment in Coimbatore Spinning & Weaving Co. Ltd. v. CIT, which held that exaggerated stock statements given to banks should not be taken lightly and must be reconciled with the books of account. The addition was confirmed due to the lack of satisfactory reconciliation by the assessee.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remitting the issue of cash purchases exceeding ?20,000 for fresh consideration by the AO. The disallowance of ?73,34,227 as bogus purchase and the addition of ?94,77,500 for stock difference were confirmed. The order was pronounced on 20th September 2019.