2020 (12) TMI 859 - AT - Income Tax

Unverifiable purchases - HELD THAT - There was nothing of documents, were found from the possession of the assessee even during the course of search and seizure operation. PR has also placed reliance on some other judicial decisions, but the facts are totally different from the facts of the case in hand. As mentioned elsewhere, total estimated value of the project for the year under consideration is more than ₹ 300 crores, therefore it would be a futile exercise to doubt the genuineness of a meager amount of ₹ 7.86 crores. Moreover, as mentioned elsewhere, the purchases were duly supported by bills and vouchers. The payment have been made through account payee cheques. The payments are reflected in the bank statement of the payer and the payee. We, therefore, do not find any reason for doubting the genuineness of these purchases. While restricting the disallowance the reasoning given by the first appellate authority is not only absurd, but illogical. Addition u/s 68 - HELD THAT - Since the loans were found credited in the books of accounts of the appellant, in the light of the provisions of section 68 it was incumbent upon the assessee to discharge the initial burden in proving the identity, genuineness and creditworthiness of the lender, which in our opinion the assessee has grossly failed to discharge. Once the assessee fails to discharge the initial burden cast upon it, the provisions of section 68 become imperative. The FAA has been carried away with the fact that the same amount has been added in the group concerns which was not at all relevant on the facts of the present case.

Summary

Issues Involved:
1. Deletion of disallowance of ?22,18,88,782/- on account of unverifiable purchases.
2. Deletion of addition of ?6,25,00,000/- under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of ?22,18,88,782/- on Account of Unverifiable Purchases:

The revenue's primary grievance was the deletion of the disallowance of ?22,18,88,782/- made by the Assessing Officer (AO) on account of unverifiable purchases. The AO had found that the purchases claimed by the assessee from four parties were not genuine as these parties were not found at the addresses mentioned on the bills during search and field inquiries. Summons issued under Section 131 of the Income Tax Act to these parties were returned unserved. Consequently, the AO treated the purchases as non-genuine and disallowed the expenditure.

However, the Tribunal noted that in the assessee's own case for the previous assessment year (A.Y. 2010-11), a similar disallowance was made by the AO, which was subsequently deleted by the Tribunal. The Tribunal had observed that no incriminating material was found during the search, and the purchases were supported by PAN details, VAT details, TIN numbers, confirmations, and bank statements. Payments were made by account payee cheques, and there was no evidence to show that the cash had reached back to the assessee. The Tribunal had relied on judicial precedents, including the Hon'ble Calcutta High Court's decision in the case of CIT Vs. Dataware Private Limited and the Hon'ble Supreme Court's decision in Tejua Rohit Kumar Kapadia, which supported the assessee's case.

Given that no distinguishing facts were brought to notice, the Tribunal followed its earlier decision and dismissed the revenue's grounds related to the disallowance of ?22,18,88,782/-.

2. Deletion of Addition of ?6,25,00,000/- under Section 68 of the Income Tax Act:

The second issue pertained to the deletion of the addition of ?6,25,00,000/- made by the AO under Section 68 of the Income Tax Act. During the assessment proceedings, the AO noticed that the assessee had obtained loans from four parties totaling ?6.25 crores, which were repaid within the same accounting year. The AO observed that the assessee failed to discharge the onus of proving the identity, creditworthiness, and genuineness of these transactions.

The CIT(A) deleted the addition, noting that the loans were received and repaid through banking channels and that the same amount was invested as share application money in another group entity, Frugal Developers Pvt. Ltd., where a similar addition was made. The CIT(A) held that the same amount could not be added twice and that the creditworthiness, genuineness, and identity of the creditors should be examined in the case of Frugal Developers Pvt. Ltd.

However, the Tribunal disagreed with the CIT(A)'s findings, stating that the addition in the hands of the present assessee could not be considered a double addition merely because the same amount was added in the group entity. The Tribunal emphasized that the assessee had failed to discharge the initial burden of proving the identity, genuineness, and creditworthiness of the lenders as required under Section 68 of the Act. Consequently, the Tribunal set aside the CIT(A)'s findings and restored the AO's addition of ?6.25 crores.

Conclusion:

In conclusion, the Tribunal dismissed the revenue's grounds related to the disallowance of ?22,18,88,782/- on account of unverifiable purchases but allowed the revenue's appeal regarding the addition of ?6,25,00,000/- under Section 68 of the Income Tax Act. The appeal filed by the revenue was partly allowed.