2021 (5) TMI 786 - AT - Income Tax

Bogus purchases - AO disallowed the 25% of the purchases merely on the ground that the assessee failed to produce the parties for verification by relying on the decision of Vijay Proteins 1996 (1) TMI 144 - ITAT AHMEDABAD-C - CIT-A deleted the addition - HELD THAT - As noted that before Ld. CIT(A), as well as before us the Ld. AR of the assessee stated that he has filed sufficient evidences, which includes the confirmations of the parties, copy of the bank statements of the parties at Surat as well as Mumbai. We have seen that no findings on these evidences were given by assessing officer. AO disallowed the 25% of the purchases merely on the ground that the assessee failed to produce the parties for verification by relying on the decision of Vijay Proteins (supra). The assessee filed the copy of bank statement of the parties. AO has not investigated if the amount paid by the assessee was recycled back to the assessee. Assessee has relied on the decision of Tejua Rohit Kumar Kapadia 2017 (10) TMI 729 - GUJARAT HIGH COURT wherein the appeal of revenue was dismissed by High Court. In the said appeal, the revenue assailed the order of Tribunal on deleting the partial disallowances of the purchases. The Hon'ble High Court held that when the assessee is trader and have shown the sales out of the purchases, which have been accepted by revenue and there was no evidence to show that the amount was recycled back to the assessee. Therefore, considering the decision of High Court of similar set of facts, we do not find any merit in the grounds of appeal raised by the revenue. No contrary fact or law is brought to our notice to take other view. Hence, we affirms the order passed by ld. CIT(A). In the result this ground of appeal raised by the revenue is rejected. Difference of closing balance of one of the party - AO rejected the books of accounts before making such addition - CIT-A deleted the addition - HELD THAT - No specific reason for rejecting the books of account was recorded by the assessing officer. The ld. CIT(A) deleted the additions by taking view that the assessee filed confirmation of Ratan Export during the assessment. AO has not made investigation at Surat addresses, if he has any doubt regarding the existence of the party; the assessing officer ought to have made further investigation. It was further held that after knowing the fact that the party was having the same PAN, the assessing officer could have reconfirmed about the party. As further noted that despite filing the confirmation of Ratan Export the assessing officer has not referred the same in his order. The assessing officer simply held that the assessee filed its explanation only when the issue was brought to his notice and rejected the books of accounts and simply made addition of the difference, without considering the confirmation. No ground for rejection of books of account is recorded by assessing officer. In our view the ld CIT(A) has considered the facts and held that no addition on account of differential amount can be made. No contrary fact is brought to our notice to take other view. Hence, we affirm the order of ld CIT(A). In the result this ground of appeal is also rejected. Appeal of the revenue is dismissed.

Issues Involved:

1. Deletion of addition on account of unverifiable purchases amounting to ?7,91,01,863/-.
2. Deletion of addition on account of difference in closing balance of ?8,05,11,522/-.
3. Reopening of assessment and issuance of notice under section 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unverifiable Purchases:

The Revenue challenged the deletion of ?7,91,01,863/- by the CIT(A) on the grounds that the purchases from three parties (Sagun Impex, Nakoda Gems, and Sunrise Impex) were unverifiable. The Assessing Officer (AO) issued notices under section 133(6) to these parties, which were returned unserved. Consequently, the AO disallowed 25% of the total purchases based on the decision in Vijay Proteins (55 TTJ 76).

The CIT(A) deleted the addition, accepting the assessee's submission that the non-production of parties after eight years was not grounds for disallowance. The assessee provided confirmations, bank statements, and proof of payments through banking channels. The CIT(A) noted that the sales were not disputed and that the purchases were necessary for the sales. The Tribunal affirmed the CIT(A)'s decision, stating that no defects were pointed out in the assessee's books of accounts, which were duly audited, and there was no evidence of recycling of funds back to the assessee. The Tribunal relied on the Gujarat High Court's decision in PCIT Vs Tejua Rohit Kumar Kapadia, which supported the assessee's case.

2. Deletion of Addition on Account of Difference in Closing Balance:

The AO made an addition of ?8,05,11,522/- due to a discrepancy between the closing balance shown by the assessee for Frost International Ltd. and the confirmation received from Frost International Ltd. The assessee explained that the discrepancy was due to a typographical error, where the balance of Ratan Export was mistakenly added to Frost International Ltd.'s balance. The AO rejected this explanation and made the addition.

The CIT(A) deleted the addition, accepting the assessee's explanation and noting that the AO did not investigate the Surat addresses of Ratan Export, despite having the PAN and confirmation from the party. The Tribunal affirmed the CIT(A)'s decision, highlighting that the AO did not provide specific reasons for rejecting the books of accounts and failed to consider the confirmation from Ratan Export. The Tribunal found no grounds to take a contrary view and upheld the CIT(A)'s order.

3. Reopening of Assessment and Issuance of Notice under Section 148:

The assessee filed an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules 1963, challenging the reopening of the assessment. The assessee argued that the AO did not dispose of the objections as mandated by the Supreme Court in GKN Driveshaft’s Ltd (259 ITR 19 SC) and that the reopening was based on a change of opinion without any new tangible material.

The Revenue countered that the assessee did not raise objections during the reassessment and that the return filed in response to the notice under section 148 was non-est as it was beyond the stipulated time. The Tribunal noted that since it had upheld the CIT(A)'s order on merits, the consideration of the application under Rule 27 became academic.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of the additions on account of unverifiable purchases and the difference in closing balance. The Tribunal found no merit in the Revenue's grounds of appeal and upheld the CIT(A)'s order, thereby rejecting the Revenue's contentions. The appeal of the Revenue was dismissed, and the order was pronounced on 17 May 2021.

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