2025 (3) TMI 146 - AT - Income Tax

Bogus Purchases - AO has primarily doubted the purchases only on basis of transportation of the goods being suspicious - HELD THAT -Quite apparently the assessee has provided all the relevant and necessary evidences to the ld. AO to establish genuineness of the purchases. However with out commenting anything on same and unable to point any deficiency in these documentary evidences the AO has relied oral statements. Further these observation of AO are based upon the statements recorded by AO behind the back of assessee and were not confronted to assessee during the course of assessment proceedings and thus any observations based on such statements could have been relied upon. CIT(A) has highlighted the observation of Ld. AO in his remand report that Sh. Mohan Lal Gupta in his statement has mentioned certain facts which are contradictory. Thus Ld. CIT(A) has casted a doubt over reliability and credibility of the statement of Sh. Mohan Lal Gupta and concluded that appellant has indeed undertaken some manipulation in terms of prices. However this observation of Ld. CIT(A) is without establishing as to what was transaction under taken with Sh. Mohan Lal Gupta in the impugned year. We find that with very general observations the ld. Tax authorities have proceeded to doubt the purchases. As far doubting the use of transport vehicle is concerned it is not the case of ld. AO that the assessee was making payments to the transporters. Then the owners of the transport agencies duly appeared before Ld. AO and their statement was record which are on record wherein they have confirmed the fact that goods were transported by them to the assessee company and the payments for the same were made by the suppliers. Thus for any discrepancy if any left in details of vehicles used cannot be basis to doubt the wholesome evidences of bills etc filed by the assessee. Thus in view of the above we are of the considered view that the addition made by AO and sustained by Ld. CIT(A) is without any basis. Addition on account of alleged suppressed profit embedded in purchases from bogus entity - When the genuineness of the purchases have also been accepted here above by us therefore addition of profit embedded in such purchases cannot be sustained. Addition on the basis of seized tally data alleging the same to be data of sale made by assessee outside the books - The said document which shows that this document does not even bears the name of the appellant. Moreover perusal of this document would show that the nomenclature of this documents is Sales Register whereas documents is named as Hygienic Purchase A/c . This ambiguity establishes that this document neither pertains to assessee nor shows any out of book sales of assessee. Thus no addition could have been made on the basis of document not found from control and possession of assessee. Addition on the ground that stock found during the survey - We find that the copy of profit and loss a/c of assessee for the period 01.04.2013 to 31.01.2014 which shows that assessee has shown closing stock in the books as on 31.01.2014 at Rs. 4, 15, 79, 778/- and thus the comparison drawn by Ld. AO on 28.02.2014 could not be taken into consideration. Even otherwise without any basis evidence or material the valuation was arrived and same deserves to be deleted. Unexplained sales - documents found and seized by search party RU-1 and marked as annexure A-39 shows the sales made by assessee of Rs. 24, 26, 94, 374/- however assessee failed to reconcile the same to the tune of Rs. 19, 83, 94, 520/- - letter filed by Mr. Sanjeev Kumar before Ld. ADIT(inv.) making surrender in his hand and further submitting the working which is enclosed at PB 292-295 and same shows that assessee has surrendered 3% profit i.e. Rs. 78, 99, 000/- on total un-reconciled turnover of Rs. 26, 33, 00, 000/- (PB 295) which includes un-reconciled turnover of Rs. 10, 28, 69, 230 in the case of assessee in AY 2014-15 based on the said seized document in his personal capacity. PB 288A-290 is the copy of ITR and computation of Mr. Sanjeev Kumar for AY 2014-15 perusal of which would show that he has surrendered total income of Rs. 3, 61, 00, 000/- which includes above mentioned surrender of Rs. 78, 99, 000/-. Thus no addition could have been made in the hands of assessee on the basis of the said seized documents and same has rightly been deleted by Ld. CIT(A).

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the additions made by the Assessing Officer (AO) on account of alleged bogus purchases and un-reconciled turnover were justified.
• Whether the CIT(A)'s decision to confirm only a portion of the additions made by the AO was legally and factually correct.
• Whether the CIT(A) was correct in enhancing the income of the assessee based on alleged suppressed profit embedded in purchases.
• Whether the documents seized during the search and seizure operation were correctly attributed to the assessee and whether they justified the additions made.
• Whether the assessment order was passed in violation of principles of natural justice.

ISSUE-WISE DETAILED ANALYSIS

1. Alleged Bogus Purchases:

• Relevant Legal Framework and Precedents: The case hinges on the interpretation of Section 143(3) of the Income Tax Act, which governs the assessment of income. The court referenced the principle that only the profit element embedded in bogus purchases can be taxed, as established in CIT vs. Simit F. Sheth.
• Court's Interpretation and Reasoning: The Tribunal observed that the AO doubted the purchases based solely on transportation discrepancies, without disputing the sales. The CIT(A) reasoned that taxing the entire purchases would lead to absurd profits, thus only the profit element should be taxed.
• Key Evidence and Findings: The assessee provided voluminous documentary evidence, including invoices, transport receipts, and bank statements, to substantiate the purchases. The AO relied on oral statements recorded without confronting the assessee.
• Application of Law to Facts: The Tribunal found that the AO's reliance on oral statements was insufficient, and the documentary evidence provided by the assessee was credible.
• Treatment of Competing Arguments: The Tribunal favored the assessee's documentary evidence over the AO's oral statements, noting the latter were recorded behind the assessee's back.
• Conclusions: The Tribunal concluded that the additions based on alleged bogus purchases were unfounded and should be deleted.

2. Enhancement of Income by CIT(A):

• Relevant Legal Framework and Precedents: The enhancement of income by the CIT(A) was based on alleged suppressed profit embedded in purchases.
• Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) accepted the genuineness of certain purchases, thus questioning the basis for any enhancement.
• Key Evidence and Findings: The Tribunal found no basis for the enhancement, as the purchases were accepted as genuine.
• Application of Law to Facts: The Tribunal reasoned that no suppressed profit could be attributed to purchases already accepted as genuine.
• Conclusions: The Tribunal held that the enhancement of income by the CIT(A) was unjustified and should be deleted.

3. Un-reconciled Turnover:

• Relevant Legal Framework and Precedents: The issue involved the addition of un-reconciled turnover based on seized documents.
• Court's Interpretation and Reasoning: The Tribunal found that the seized documents did not pertain to the assessee, and the CIT(A) erroneously relied on findings from a different case.
• Key Evidence and Findings: The Tribunal noted discrepancies in the seized documents, including incorrect addresses and business names.
• Application of Law to Facts: The Tribunal concluded that no addition could be made based on documents not found in the assessee's control.
• Conclusions: The Tribunal deleted the additions related to un-reconciled turnover.

4. Alleged Difference in Stock:

• Relevant Legal Framework and Precedents: The AO made additions based on alleged sales outside the books, inferred from stock discrepancies.
• Court's Interpretation and Reasoning: The Tribunal found that the AO's comparison was flawed, as it was based on stock figures from different dates.
• Key Evidence and Findings: The Tribunal noted the lack of basis for the AO's valuation of stock.
• Application of Law to Facts: The Tribunal held that the AO's comparison was inaccurate and unreliable.
• Conclusions: The Tribunal deleted the additions based on alleged stock discrepancies.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The gross profit embedded in the bogus purchases can be added and not the entire purchases." This principle guided the Tribunal's decision to delete the additions based on alleged bogus purchases.
• Core Principles Established: The Tribunal reinforced the principle that documentary evidence holds more weight than oral statements, especially when the latter are recorded without confronting the assessee.
• Final Determinations on Each Issue: The Tribunal allowed the assessee's appeal, deleting all additions made by the AO and confirmed by the CIT(A), while dismissing the revenue's appeal.