2021 (10) TMI 1239 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - HELD THAT - Assessee has furnished the VAT audit report and Sales-tax return of M/s Khushal Trading Corporation, wherein, the transaction with the assessee has been reflected. It is also evident, the assessee has made payment for purchase to M/s Khushal Trading Corporation through banking channel - it can be said that not only the identity of M/s Khushal Trading Corporation is established but the assessee had purchased goods from the said party is also proved, as the concerned selling dealer has also furnished confirmation of account. Thus, in such circumstances, the amount cannot be treated as unexplained cash credit as the identity, genuineness and creditworthiness have been established. Bogus purchases - The purchases made from M/s Khushal Trading Corporation cannot be held as non genuine merely because ledger account copy of assessee for couple of years could not be furnished due to certain exigencies. In any case of the matter, once the selling dealer confirms the sales made to the assessee and when such sales have been reflected in its accounts and returns filed, both, before the Income-tax department as well as Sales-tax department and there is no adverse information from the Sales-tax department, the purchases made from M/s Khushal Trading Corporation cannot be doubted, merely on the basis of presumption and surmises, unless, the revenue brings evidence on record to factually establish that the purchases are non genuine or M/s Khushal Trading Corporation is a non genuine entity.

Summary

Issues:
Addition of amount under section 68 of the Income Tax Act, 1961.

Analysis:
The primary issue in this case revolves around the addition of an amount of ?42,75,000 under section 68 of the Income Tax Act, 1961. The assessing officer observed discrepancies in the assessee's balance sheet concerning sundry creditors and purchases. Despite the assessing officer's doubts, the first appellate authority deleted the adhoc disallowance but wanted to verify the genuineness of the creditors. Specifically, attention was drawn to two purchase invoices from M/s Khushal Trading Corporation exceeding ?10 lakhs each. The Commissioner of Income Tax (Appeals) issued notices under section 133(6) to verify the genuineness of the credit amount, leading to discrepancies in addresses and responses from M/s Khushal Trading Corporation.

During the appellate proceedings, the authorized representative of the assessee provided detailed documentation related to purchases from M/s Khushal Trading Corporation, emphasizing the regular transactions and legitimacy of the business. On the contrary, the departmental representative highlighted the inability to locate the concerned party at the given address and the absence of the ledger account copy despite requests. The assessing officer did not question the purchases from M/s Khushal Trading Corporation, and the Commissioner (Appeals) made the disallowance based on incomplete information and physical verification discrepancies.

Upon reviewing the submissions and evidence, it was established that M/s Khushal Trading Corporation's identity, genuineness, and creditworthiness were proven through various documents, including profit and loss accounts, balance sheets, tax returns, and transaction records. The purchases made through banking channels further supported the legitimacy of the transactions. The absence of adverse information from the Sales-tax department and the confirmation of sales made to the assessee solidified the credibility of M/s Khushal Trading Corporation.

Conclusively, the Tribunal ruled in favor of the assessee, emphasizing that the purchases from M/s Khushal Trading Corporation could not be deemed non-genuine. The Tribunal highlighted the importance of factual evidence and the establishment of credibility through documentation and official records, ultimately leading to the deletion of the addition of ?42,75,000 under section 68 of the Income Tax Act, 1961.