2024 (11) TMI 389 - HC - Income Tax

Disallowance of bogus purchases - assessee failed to prove identity of the suppliers and genuineness of such purchases claimed during the course of assessment proceedings by not producing these parties before - ITAT found that the disallowance of expenditure is not sustainable and found that the evidence and material produced by the assessee establish that it had incurred the expenditure as claimed HELD THAT - There is no material on record to indicate that there is any serious doubt as to the physical material shown to be purchased from the four entities in question, was used by the assessee in its activities. The stock registers produced by the assessee were not rejected by the AO. It is also apparent that the assessee had established that it made payments through banking channels against the supply of materials, which were duly reflected in its stock registers. As noted by ITAT, there is no evidence to suggest that the amounts paid by the assessee for the supplies booked in its books of accounts had been returned to the assessee in a form of cash or through any accommodation entry. It is clear from the above that the controversy involved is fact-centric and revolves on the question whether, in fact, the purchases booked in the books of accounts were wholly and exclusively for the purpose of business as claimed by the assessee. The findings of the learned ITAT in this regard cannot be held to be perverse. Decided against revenue.

Summary

Issues:
Disallowed purchases as expenditure - Rs. 7,86,21,320
Validity of the deletion of addition by ITAT
Applicability of Section 69C of the Income Tax Act
Existence of suppliers and genuineness of purchases
Valuation of project and expenditure determination

Analysis:
The High Court of Delhi addressed the appeal filed by the Revenue challenging an order passed by the Income Tax Appellate Tribunal (ITAT) regarding disallowed purchases as expenditure amounting to Rs. 7,86,21,320. The ITAT had ruled in favor of the assessee, holding that the purchases were genuine based on the evidence provided. The Revenue raised questions regarding the genuineness of the purchases and the existence of suppliers. However, the Court noted that no additions were made by the Assessing Officer under Section 69C of the Income Tax Act, and the impugned order was not based on such additions.

The controversy centered around the disallowance of purchases made by the assessee from four entities, which the Revenue alleged to be bogus. The Revenue questioned the ITAT's decision to delete the addition without considering Section 69C of the Act. The Court found that the ITAT's decision was fact-centric and not perverse, as the evidence showed that payments were made through banking channels, and there was no indication of cash repayment by suppliers.

The Court highlighted that the assessee had produced various documents, including bank records and stock registers, to support the genuineness of the purchases. The CIT(A) had valued the project to determine the expenditure, ultimately reducing the addition made by the AO. The ITAT, after reviewing the evidence, concluded that the purchases were genuine and allowable as expenditure for business purposes.

Ultimately, the Court dismissed the appeal, stating that no substantial questions of law arose for consideration. The judgment emphasized the importance of factual evidence in determining the genuineness of transactions and upheld the ITAT's decision in favor of the assessee.