2024 (9) TMI 91 - AT - Income Tax

Bogus purchases - addition made of profit element embedded in the purchases made by the assessee held to be bogus - assessee had pointed out discrepancy in the incriminating material found from accommodation entry provider M/s. HJM Fuels Pvt. Ltd during the survey which formed the basis with the Department for holding the entire purchase made by the assessee to be bogus - formal acceptance of the Assessee's books of accounts u/s 145(3) - onus of proving the genuineness of the transactions HELD THAT - Since the Department has been unable to controvert the contentions made by the assessee that the incriminating material lack credibility and in fact the AO agreed with the factual contentions of the assessee which questioned the credibility of the incriminating material, we agree with assessee that the said incriminating material was therefore wrongly relied upon by the AO for making addition in the hands of the assessee, treating the purchases to be bogus. Assessee filed a detailed reply pointing out that they had communicated with the Director of M/s. HJM Fuels Pvt. Ltd. for appearing before the AO who had submitted his inability to do so because of his health condition, but at the same time had stated that all necessary documents evidencing the genuineness of the transactions had been filed by him along with his affidavit in this regard in response to summons issued to him by the AO u/s 132(1) - these facts have also remained uncontroverted by the AO and in fact he has admitted to the Director of M/s. HJM Fuels Pvt. Ltd. having filed an affidavit admitting to having undertaken transactions of sales to the tune of Rs. 2.47 crores with the assessee. Thus the assessee had established with evidence the factum of having made purchases from M/s. HJM Fuels Pvt. Ltd. having furnished copies of bills of purchases and the mode of purchases made, Copy of VAT returns reflecting the said sales to the assessee and the copy of the Form No.26AS reflecting the said purchases on which the TCS was collected and the credits of the same were claimed by the assessee was filed. The assessee had also submitted the quantitative tally of the purchases made by it during the entire year substantiated with Purchase Bills and Register and the sales made by it during the year substantiated by the Sales Register. Thus, in effect, on merits, the assessee had duly established the genuineness of the transactions of purchases undertaken. The Director of M/s. HJM Fuels Pvt. Ltd. had submitted by way of affidavit of having entered into the transactions of sale of coal to the assessee, which has also been admitted by the Assessing Officer and no infirmity in the said affidavit pointed out by the Assessing Officer - AO given no reason for accepting the incriminating material despite the assessee pointing out defects in the same. Thus, the incriminating material relied upon by the Revenue for making addition, we find was established to be not credible and having no evidentiary value. Thus no case /basis with the Department for treating the purchases made by the assessee from party as bogus. The addition, therefore, made of the profit element embedded is clearly, therefore, not sustainable - Assessee appeal allowed.

Issues Involved:
1. Improper Confirmation of Additions Despite Acceptance of Books of Accounts
2. Confirmation of Addition in Absence of Contradictory Evidence
3. Disregard for Documentary Evidence and Vendor Confirmation
4. Unjustified Double Taxation through Gross Profit-Based Addition

Issue-Wise Detailed Analysis:

1. Improper Confirmation of Additions Despite Acceptance of Books of Accounts:
The primary issue in the appeal pertains to the addition made to the income of the assessee of profit element embedded in the purchases held to be bogus. The quantum of purchases treated as bogus amounts to Rs. 2,47,76,349/-, and 10.46% of the same was estimated as the profit element embedded, resulting in an addition of Rs. 25,91,606/-. The assessee contended that the CIT(A) erroneously upheld this addition despite the formal acceptance of the Assessee's books of accounts under Section 145(3) of the Income Tax Act, 1961.

2. Confirmation of Addition in Absence of Contradictory Evidence:
The assessee argued that the addition of INR 25,91,606/- lacks substantiation through adverse documentary evidence against the Assessee. The Department's reliance on incriminating material found during a survey at M/s. HJM Fuels Pvt. Ltd. was questioned for its credibility and evidentiary value. The assessee had submitted various documents, including purchase bills, details of modes of goods delivery, and contra confirmation ledger of M/s. HJM Fuels Pvt. Ltd., which were not contradicted by the Revenue.

3. Disregard for Documentary Evidence and Vendor Confirmation:
The assessee provided documentary evidence and vendor confirmation to support the genuineness of the transactions. This included:
- Copy of purchase bills of M/s. HJM Fuels Pvt. Ltd.
- Details of modes of goods delivery and contra confirmation ledger
- Payments made via RTGS/Account Payee Cheques
- Copies of bank statements reflecting the payments
- Quantitative tally of purchases and sales
- VAT returns and TCS statements of HJM Fuels reflecting sales to the assessee
Despite these submissions, the Revenue authorities held the purchases as bogus, relying on the incriminating material which the assessee argued lacked credibility.

4. Unjustified Double Taxation through Gross Profit-Based Addition:
The assessee contended that the addition of Gross Profit at 10% on the purchase transactions led to inadvertent double taxation, as the income from subsequent sales had already been offered for taxation. The Tribunal found that the assessee had sufficiently discharged its onus of proving the genuineness of the purchases, and the incriminating material relied upon by the Revenue was not credible. The Tribunal noted that the Assessing Officer had admitted to the Director of M/s. HJM Fuels Pvt. Ltd. having filed an affidavit confirming the transactions and that the Assessing Officer did not point out any discrepancy in the evidence provided by the assessee.

Conclusion:
The Tribunal held that the addition made in the case of the assessee was not justified and needed to be deleted. The assessee had established the genuineness of the transactions with evidence, and the incriminating material relied upon by the Revenue lacked credibility and evidentiary value. Consequently, the appeal filed by the assessee was allowed, and the addition of Rs. 25,91,606/- was directed to be deleted. The order was pronounced in the open Court on 30/08/2024 at Ahmedabad.

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