2020 (8) TMI 506 - AT - Income Tax

Trading addition - Estimation of income - bogus purchases - Non rejection of books of accounts - HELD THAT - On the credit side of the trading account, sales and closing stock are verifiable and the opening stock is also reflected in the books of account, purchases and the other quantitative details are tallying with the books of accounts and purchases, then there cannot be any inference that purchases made and shown by the assessee are bogus. As regards the difference of rates the AR has already pointed out that assessee had purchased different quality of steel alloys the rate of which was ₹ 110 per kg from different party also and from M/s Maa Durga Trading Company the assessee had purchased steel alloy @ ₹ 32 and @ ₹ 35 and also ₹ 110 per kg. Such an inference drawn by the CIT (A) is divorced from the facts and material on the record. Thus when purchased are duly accepted by the VAT Department including the sales and manufacturing account and the quantity utilized for the manufacturing has not been disputed and trading account and books of account have not been rejected, then no separate addition on account of purchase cannot be made. - Appeal of the assessee is allowed.

Issues Involved:
1. Disallowance of purchase amounting to ? 13,09,552/- from M/s Maa Durga Trading Company.
2. Reopening of the assessment under sections 143(3)/147.
3. Adequacy of evidence provided by the assessee to substantiate purchases.
4. Validity of the Assessing Officer's reliance on unserved notices issued under section 133(6).
5. Evaluation of the assessee's stock and profit records.

Detailed Analysis:

1. Disallowance of Purchase from M/s Maa Durga Trading Company:
The assessee challenged the disallowance of ? 13,09,552/- made by the Assessing Officer (AO) on the grounds that these purchases were considered bogus. The AO noted that the assessee did not respond adequately to notices and failed to produce supporting evidence for the purchases. The AO issued notices under section 133(6) to M/s Maa Durga Trading Company, which were returned unserved. Consequently, the AO treated the entire purchase as bogus.

2. Reopening of Assessment Under Sections 143(3)/147:
The assessee's case was reopened under section 147 based on information that the purchases from M/s Maa Durga Trading Company were accommodation entries. The AO issued a notice under section 148 on 27.03.2015, leading to the reassessment.

3. Adequacy of Evidence Provided by the Assessee:
Before the CIT (A), the assessee provided various documents to substantiate the purchases, including bills, transit challans, VAT assessment orders, ledger accounts, and details of payments made by cheques. Despite this, the CIT (A) dismissed the appeal, noting inconsistencies in the purchase and sale figures and the lack of a day-to-day stock register.

4. Validity of AO's Reliance on Unserved Notices Issued Under Section 133(6):
The AO's decision to treat the purchases as bogus was primarily based on the fact that notices issued under section 133(6) to M/s Maa Durga Trading Company were returned unserved. The assessee argued that the notice was issued after a gap of 8 years, and it was difficult to provide the current address of the supplier.

5. Evaluation of Assessee's Stock and Profit Records:
The CIT (A) observed significant variations in the profit margins and noted discrepancies in the purchase and sale figures. The CIT (A) also compared the rates of alloy steel purchased from different suppliers and found inconsistencies. However, the assessee contended that different qualities of steel alloys were purchased at varying rates, and the books of account were not rejected.

Final Judgment:
The Tribunal found that the assessee had provided sufficient evidence to substantiate the purchases, including transit challans issued by the VAT Department, payment details through cheques, and stock registers. The Tribunal noted that the AO and CIT (A) did not consider these documents adequately. The Tribunal also observed that the non-service of notices under section 133(6) after 8 years could not be the sole basis for treating the purchases as bogus. The Tribunal concluded that the purchases were genuine and deleted the addition of ? 13,09,552/-. The appeal of the assessee was allowed.

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