2022 (8) TMI 669 - AT - Income Tax

Bogus purchases - purchases managed through accommodation entries - recharacterization of the duly accounted sales of the assessee as unexplained cash credits - CIT-A deleted the addition - HELD THAT - Adverting to the view taken by the A.O that as the assessee had claimed to have procured goods from 17 tainted parties who were involved in the business of providing bogus bills and accommodation entries, therefore, corresponding purchase transactions were to be held as bogus, we are afraid could not have been summarily so held by him by discarding the substantial documentary evidences that were filed by the assessee in support of the authenticity of the purchase transactions in question. As is discernible from the orders of the lower authorities no incriminating material had been brought on record to support the claim of the A.O that the assessee had booked bogus purchases. On the contrary, as observed by the CIT(Appeals), and rightly so, now when purchases in question had duly been substantiated by the assessee by placing on record invoices of the suppliers which clearly make a reference of the names, weight, quality and quantity, transportation vehicle numbers, names of drivers, bank statements of the assessee showing the payments made, confirmations of brokers, delivery of the goods at the CCI which is a government body and loading of the goods into railway wagons for which bills had been issued by the railways that were cleared by the assessee, the A.O without dislodging the authenticity of the aforesaid documents could not have held the purchases in question as bogus. As regards the infirmities in the vehicle registration numbers as was relied upon by the A.O for supporting his conviction that the assesee had only obtained bogus bills and not made any genuine purchases of the goods in question, we find that the assesee qua the said issue vide his letter filed before the CIT(Appeals), had came forth with necessary clarifications and correct vehicle numbers which matched with the weighment slips at CCI. On a perusal of the aforesaid factual position, we are of the considered view that now when the assessee had corrected the mistakes and provided the correct vehicle numbers which tallied with the weighment slips of CCI, then, there remained no occasion for doubting the authenticity of the assessee s claim of having purchased the goods in question. As observed by the CIT(Appeals), and rightly so, though the registration of some of the suppliers had been cancelled by the Commercial Tax Department prior to the impugned purchases claimed by the assessee, but then on the said standalone basis it could not have been inferred that the business of the said suppliers was completely closed down, because there was evidence that goods were supplied by the said parties to the assessee through the brokers. Apart from that, as observed by the CIT(Appeals), we find that except for in the case of 4 suppliers registrations in the case of the remaining suppliers was cancelled by the Commercial Tax Department much after the end of the relevant financial year in which the assessee had purchased rice from them. Also, we concur with the view taken by the CIT(Appeals) that for the reason that the suppliers in question had not shown rice sales in their sales tax returns filed with the Commercial Tax Department, adverse inferences as regards the genuineness of the assessee s claim of having purchased goods from them could not have justifiably been drawn, specifically when supporting documentary evidence was placed on record by the assessee. We are, also, in agreement with the view taken by the CIT(Appeals) that now when the assessee had made payments to the suppliers through banking channels i.e., RTGS/NEFT and A/c payee cheques, therefore, it was incorrect on the part of the A.O in absence of any supporting material to conclude that the amount in question would have been withdrawn and returned to the assessee after deducting commission on the same. We concur with the view taken by the CIT(Appeals) that as the A.O had not controverted the material which was submitted by the assessee during the course of the assessment proceedings, viz. vehicle numbers (which were corrected in the assessment proceeding), bank details, transportation details of trucks, custom clearance details, export sales and domestic sales documents, confirmation from exporters a/w. copies of account, but had chosen to focus more on the modus operandi adopted by the firms/brokers for providing bogus bills/accommodation entries, therefore, in absence of dislodging of the aforesaid supporting documents/materials there was no justification on his part in drawing adverse inferences as regards the authenticity of the purchases in question. We, thus, in terms of our aforesaid observations, finding no infirmity in the well-reasoned view taken by the CIT(Appeals) as regards the authenticity of the purchases claimed by the assessee to have been made from the aforesaid suppliers/brokers, uphold his view to the said extent. Thus concluded that the assessee had made genuine purchases, which thereafter, were proved to the hilt to have been sold to the aforementioned buyers i.e., both for export and domestic sales, therefore, finding no basis for drawing of adverse inferences as regards the authenticity of the sale transactions by the A.O., we concur with the well-reasoned view of the CIT(Appeals) who had rightly vacated the said addition - Decided against revenue.

Summary

Issues Involved:
1. Whether the bogus purchases of Rs.10,17,58,794/- were genuine and admissible expenditure.
2. Whether the books of account of the assessee were reliable.
3. Whether findings of the Commercial Tax Department regarding bogus purchases were ignored.
4. Whether affirmation on oath by proprietors of concerns admitting bogus activities was ignored.
5. Application of the Supreme Court decision in McDowell and Co. Ltd. vs Commercial Tax Office.
6. Application of ITAT Mumbai decision in Soman Sun City vs. JCIT.
7. Application of Delhi High Court decision in CIT vs Arun Malhotra.
8. Acceptance of fresh evidence without allowing AO/TPO to examine.
9. Whether the CIT(A) findings contradicted the evidence on record.
10. Whether there was a nexus between the conclusion of fact and primary fact.
11. Whether the transactions were genuine.
12. General errors in law and facts by CIT(A).
13. Any other grounds to be adduced at the time of hearing.

Detailed Analysis:

1. Bogus Purchases:
The AO concluded that the assessee procured bogus purchase bills from 17 tainted parties based on information from the Commercial Tax Department and surveys. The AO rejected the books of account under Sec. 145(3) and added Rs.10,17,58,794/- to the assessee's income. The CIT(A) found that the purchases were supported by invoices, transportation details, weighment slips, and payments through banking channels, thus deeming the purchases genuine.

2. Reliability of Books of Account:
The AO rejected the books of account under Sec. 145(3) due to discrepancies in vehicle numbers and other irregularities. The CIT(A) found the books reliable, noting that the assessee provided correct vehicle numbers and other supporting documents during the assessment proceedings.

3. Ignoring Findings of Commercial Tax Department:
The AO relied on the Commercial Tax Department's findings of bogus purchases. The CIT(A) held that mere information from the Commercial Tax Department without independent enquiry by the AO could not be used against the assessee.

4. Ignoring Affirmation on Oath:
The AO cited statements under Sec. 131 by proprietors admitting to bogus activities. The CIT(A) observed that these statements did not directly implicate the assessee and lacked specific admissions of providing bogus bills to the assessee.

5. Application of McDowell and Co. Ltd. Decision:
The AO argued that the Supreme Court decision in McDowell and Co. Ltd. vs Commercial Tax Office applied. The CIT(A) did not find this relevant as the assessee provided substantial evidence supporting the genuineness of transactions.

6. Application of ITAT Mumbai Decision:
The AO referenced the ITAT Mumbai decision in Soman Sun City vs. JCIT. The CIT(A) found that the facts of the current case were different, with the assessee providing comprehensive documentation supporting the transactions.

7. Application of Delhi High Court Decision:
The AO also cited the Delhi High Court decision in CIT vs Arun Malhotra. The CIT(A) distinguished this case, noting that the assessee had provided substantial evidence supporting the transactions.

8. Acceptance of Fresh Evidence:
The AO claimed that the CIT(A) accepted fresh evidence without allowing proper examination. The CIT(A) considered all evidence presented during the assessment and appeal proceedings, finding it sufficient to support the assessee's claims.

9. Contradiction with Evidence:
The AO argued that the CIT(A)'s findings contradicted the evidence on record. The CIT(A) found that the evidence provided by the assessee, including invoices, transportation details, and banking records, supported the genuineness of the transactions.

10. Nexus Between Conclusion and Primary Facts:
The AO contended there was no nexus between the conclusion and primary facts. The CIT(A) found a clear connection between the evidence provided and the conclusions drawn, supporting the genuineness of the transactions.

11. Genuineness of Transactions:
The AO held that the transactions were not genuine. The CIT(A) found the transactions genuine, supported by comprehensive documentation and confirmations from buyers and brokers.

12. General Errors by CIT(A):
The AO claimed general errors in law and facts by the CIT(A). The CIT(A) provided a detailed analysis and justification for each finding, supporting the assessee's claims with substantial evidence.

13. Other Grounds:
No additional grounds were raised during the hearing.

Conclusion:
The appeal by the Revenue was dismissed. The CIT(A)'s findings were upheld, confirming the genuineness of the purchases and sales transactions, and the reliability of the assessee's books of account. The CIT(A) provided a thorough and detailed analysis, addressing each contention raised by the AO and supporting the assessee's claims with substantial evidence.