1995 (5) TMI 51 - AT - Income Tax

Account Books, Account Books, Assessing Officer, Assessing Officer, Assessment Proceedings, Assessment Proceedings, Assessment Year, Sales Tax, Sales Tax

Summary

Issues Involved:

1. Alleged Bogus Purchases
2. Confirmation of Addition by CIT(A)
3. Genuineness of Transactions
4. Burden of Proof and Evidence
5. Procedural Irregularities

Issue-wise Detailed Analysis:

1. Alleged Bogus Purchases:
The primary issue in the appeal was the addition of Rs. 6,54,767 for alleged bogus purchases. The Assessing Officer (A.O.) concluded that the purchases were bogus based on the inspector's report, which indicated that seven parties were non-existent and not traceable. Summons issued to four concerns were returned with the remarks "not known." Despite the assessee providing documentary evidence, including purchase confirmations and bank statements, the A.O. rejected these as insufficient to prove the genuineness of the transactions. The A.O. treated these purchases as inflated expenses and added the amount to the income.

2. Confirmation of Addition by CIT(A):
The CIT(A) upheld the A.O.'s addition, agreeing that the parties were non-existent and that issuing further summons would serve no purpose. The CIT(A) noted that the payments by account payee cheques and sales-tax registration numbers could not prove the transactions if the parties were non-existent. The CIT(A) also dismissed the argument that an 82% gross profit rate was unrealistic, suggesting that the assessee might have shown bogus purchases in earlier years.

3. Genuineness of Transactions:
The Tribunal found that the A.O. did not conduct thorough enquiries, such as verifying the bank accounts or sales-tax registrations. The Tribunal emphasized that payments by account payee cheques, supported by bank statements, were significant evidence of genuine transactions. The Tribunal cited the ITAT's decision in the case of Novel Project Ltd., which held that transactions made through account payee cheques should not be treated as bogus without substantial evidence.

4. Burden of Proof and Evidence:
The Tribunal noted that the assessee had discharged the primary onus of proving the purchases by producing books of account, bills, vouchers, and bank statements. The burden then shifted to the department to disprove the transactions. The Tribunal criticized the A.O. for not conducting adequate investigations, such as enquiring from the bank authorities or the sales-tax department. The Tribunal held that suspicion could not replace proof and that the A.O.'s findings were based on inadequate evidence.

5. Procedural Irregularities:
The Tribunal found procedural lapses in the handling of the case. The A.O. did not show the returned summons to the assessee or provide certified copies, which the Tribunal deemed necessary for transparency. The Tribunal also noted that the A.O. did not follow up on the inspector's report with further investigations. The Tribunal highlighted that the CIT(A) and the A.O. failed to reconcile various stands, such as treating the purchases as bogus, concealed stock, or inflated expenses, which were inconsistent.

Conclusion:
The Tribunal concluded that the addition of Rs. 6,54,767 was not justified. The assessee had provided sufficient evidence to prove the genuineness of the purchases, and the department had failed to disprove it. The Tribunal quashed the orders of the A.O. and the CIT(A) and deleted the addition. The Tribunal emphasized the need for thorough investigations and proper procedural adherence in such cases.