2022 (9) TMI 885 - HC - Income Tax

Bogus purchases - addition made as AO was not satisfied with the genuineness of purchases made from three out of four parties - purchases made from the three parties, which could not be verified, treating the same as bogus expenses - HELD THAT - We not absolve the assessee from discharging the onus of satisfying the AO with respect to the genuineness of purchases in question through independent corroborative evidence. AO shall consider afresh the documentary evidence produced by the assessee before the ITAT in accordance with the directions contained in the ITAT order except to the limited extent modified above. Appellant has expressed an apprehension that the AO may not consider the evidence placed on the record of the ITAT and draw an adverse inference against the assessee and raise a presumption that the ITAT did not accept the sufficiency of the said documents. We have perused the impugned order and it is evident that the ITAT has not rejected the said documents or expressed any opinion on the admissibility of the said documents. ITAT has remanded the matter back to the AO to verify the said documents and the issue for a fresh decision. We accordingly direct the AO to consider all the documents produced by the assessee for verification of the purchases including the documents filed before the ITAT while deciding the issue.

Summary

Issues:
Challenge to ITAT order on disallowance of purchases as bogus expenses.

Analysis:
The appellant, engaged in trading chemical products, challenged the ITAT order dated 27th April, 2021, disallowing purchases made from certain parties during the assessment year 2013-14. The AO disallowed purchases from three out of four parties as bogus expenses, adding Rs. 48,01,597 to the returned income. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT. The ITAT directed the AO to re-examine the purchases made from the three parties, considering the assessee's stock reconciliation statement, sales invoices, and documents supporting delivery of goods. The ITAT also instructed the assessee to produce the purchase parties along with their confirmation before the AO.

The appellant contested the direction to produce purchase parties, arguing that the purchases were from the financial year 2012-13 and that there was independent corroborative evidence in the form of VAT returns reflecting purchases. The appellant requested modification of the ITAT's direction from 'shall' to 'may' to prevent adverse inferences if the purchase parties could not be traced after a long time. The ITAT order emphasized the need for reconciliation of purchases and sales, directing the AO to consider all documents produced by the assessee for verification.

The High Court modified the ITAT's direction, changing 'shall' to 'may,' considering the difficulty in locating parties from FY 2012-13. The Court clarified that the modification did not absolve the assessee from proving the genuineness of purchases with independent evidence. It directed the AO to consider all documents, including those filed before the ITAT, without drawing adverse inferences. The Court partially allowed the appeal, emphasizing that it had not examined the merits of the case, leaving the decision on the genuineness of purchases to the AO based on the evidence presented.