2022 (3) TMI 1238 - AT - Income Tax

Disallowance of expenses on account of bogus purchases - contention of the Assessee that he had submitted all possible evidences to prove their genuineness and merely because the parties were not found at the address on the notices u/s. 133(6) of the Act,the expenses could not be held to be ingenuine - HELD THAT - It is not the case of the revenue that even in the year in which the enquiry was conducted, the assessee was carrying on transactions with the said party, which could have raised doubts regarding the said transaction. Further considering the fact that the assessee made purchases of raw materials from two parties only ,as noted by the AO having purchased raw material worth ₹ 25.04 lakhs from Coating specialties and 13.41 lakhs from Gautam Stone ,treating the entire purchases from Gautam Stone bogus would tantamount to disallowing 1/3 of the total purchases approximately of raw material, and without doubting the factum and quantum of sales made by the assessee ,the same would result in the consumption ratio of raw material and the gross profit of the assessee going for a toss. Without dealing with this aspect of the matter as also without conducting further inquiries from its own records and ignoring the evidences filed by the assessee showing purchase of raw material from the said party and payment also being made to it by banking channels, the disallowance of purchases merely for the reason that notice u/s. 133(6) of the Act remained unserved, we hold is not justified. Merely on account of non appearance of parties, purchase transactions conducted with them could not be said to be bogus when otherwise the assessee had filed all relevant evidences in support and the book results of the assessee were accepted including sales made by it. The disallowance of purchase made from M/s Gautam Stone Grinding Mill is directed to be deleted. Ground no. 1 is allowed. Disallowance of depreciation and additional depreciation on account of purchases made of plant and machinery - Burden of proof - HELD THAT - We have noted that copies of bills of purchases of plant and machinery as also the bank statement highlighting payments made to the said party mentioned in the narration were filed. Therefore the burden of proof stood duly discharged by the assessee and we have noted that nothing adverse has been pointed out by the revenue with respect to aforementioned evidences. It is only the fact that the party was not traceable in response to notice u/s. 133(6) issued by the AO. and the assessee was unable to produce him that the evidences were discarded by the revenue as not sufficient to prove the claim of the assessee. As in the case of Bogus purchases, dealt with us above at para 11-12 we hold that in the light of evidences filed by the assessee, nothing adverse having been pointed out against which by the revenue, the onus of proving the genuineness of the claim stood duly discharged and the purchases of plant and machinery could not have been held to be bogus merely for the reason that the party was not found at the stated address. In view of the above, disallowance of depreciation and additional depreciation on the impugned assets purchased from Pneucon Process Technologies deleted. Ground no. 2 is allowed. Disallowance of claim of freight outward expenses - HELD THAT - As noted that the facts are identical as in the case of bogus purchases and purchase of plant and machinery discussed and adjudicated by us by above in the preceding paragraph wherein the assessee has filed all possible evidences available with it to prove the genuineness of its claim by way of invoices of the said party as also demonstrating payment to the said party through banking channels and the revenue, we have noted has without pointing anything adverse in the said evidences has held the same to be bogus for the reason that the notice issued by the A.O. u/s. 133(6) remained unserved/unresponded - thus the impugned expenses are also held to have been proved by the assessee to be genuine and disallowance made is directed to be deleted. Disallowing preoperative expenses - HELD THAT - Preoperative expenses has been sufficiently demonstrated by the assessee as relating to R D expenses incurred of which 1/5 had been claimed during the year. CIT(A) we have noted has given no reason for not allowing the claim of the assessee and has failed to appreciate the contention of the assessee and the facts as pointed out by him. We therefore hold that the claim of the assessee to preoperative expenses was duly established and the disallowance of same is therefore directed to be deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Bogus purchases
2. Disallowance of depreciation on plant and machinery
3. Disallowance of freight outward expenses
4. Disallowance of preoperative expenses

Issue-wise Detailed Analysis:

1. Bogus Purchases:
The Assessing Officer (A.O.) disallowed ?13,41,501/- as unaccounted purchases from M/s. Gautam Stone Grinding Mills due to non-response to notices issued under Section 133(6) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, citing the absence of bank statements from Gautam Stone. However, the assessee provided various documents, including confirmation letters, bills, and bank statements showing payments to Gautam Stone. The Tribunal held that the genuineness of the transaction was established through these documents, and the mere non-response to notices was insufficient to deem the purchases bogus. The Tribunal directed the deletion of the disallowance of ?13,41,501/-.

2. Disallowance of Depreciation on Plant and Machinery:
The A.O. disallowed ?7,54,444/- (?3,23,333/- as depreciation and ?4,31,111/- as additional depreciation) on plant and machinery purchased from M/s. Pneucon Process Technologies, citing unserved notices under Section 133(6) and the inability of the assessee to produce the party. The CIT(A) upheld this disallowance. The assessee provided invoices and bank statements showing payments to Pneucon Process Technologies. The Tribunal found that the assessee had discharged its burden of proof and that the disallowance was unjustified. The Tribunal directed the deletion of the disallowance of ?7,54,444/-.

3. Disallowance of Freight Outward Expenses:
The A.O. disallowed ?5,76,999/- claimed as freight outward expenses to Jai Baba Roadways due to non-response to notices under Section 133(6) and the inability of the assessee to produce the party. The CIT(A) upheld this disallowance. The assessee provided ledger accounts, invoices, lorry receipts, and bank statements showing payments to Jai Baba Roadways. The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the expenses and that the disallowance was unjustified. The Tribunal directed the deletion of the disallowance of ?5,76,999/-.

4. Disallowance of Preoperative Expenses:
The A.O. disallowed ?2,09,634/- as excess preoperative expenses claimed by the assessee. The CIT(A) upheld this disallowance, noting discrepancies in the claimed amount. The assessee argued that the amount included R&D expenses, of which 1/5th was claimed as preoperative expenses. The Tribunal found that the assessee had sufficiently demonstrated the nature of the expenses and that the disallowance was without proper reasoning. The Tribunal directed the deletion of the disallowance of ?2,09,634/-.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of all disallowances made by the A.O. and upheld by the CIT(A). The Tribunal emphasized the importance of documentary evidence provided by the assessee and found that the non-response to notices under Section 133(6) was insufficient to deem the transactions as bogus or ingenuine.