2013 (9) TMI 370 - AT - Income Tax

Bogus Purchases - Business of Supplying Fabrics OR Not Maintaining Stock Register - Weather the CIT (A) had erred in deleting the addition made by AO on account of bogus purchases by ignoring details and if the purchases were genuine when the suppliers, who had supposedly sold the material had confessed to the fact that they were not in the business of supplying fabrics - and was it correct in basing his findings on stock statements submitted by the assessee when the assessee did not maintain quantitative stock register and had been unable to link purchases with corresponding production and sale - Held that - Additions have been solely based on the statement of few parties - Two parties had filed affidavit making the averments that the statements obtained from them were obtained under duress - Furthermore, statement of Sh. Rakesh Gupta was obtained behind the back of the assessee - Assessee was never given an opportunity to cross examine him, despite requests - profit disclosed by the assessee were comparable profits and there was no evidence to establish the bills represented bogus bills - The assessee had also furnished bill wise, details of fabric and its utilization in manufacturing garments alongwith the corresponding invoices issued and money realized subsequently from the purchasers in the bank account of the assessee - CIT (A) had given a reasonable order touching upon all the aspects raised by the Assessing Officer - There was no infirmity in the order of the Ld. Commissioner of Income Tax (A). As regards the statement of Sh. Rakesh Gupta was concerned, it emanates that assessee has wanted an opportunity to cross examine - But that opportunity was not given by the Assessing Officer - Hence, statement of Sh. Rakesh Gupta cannot be the sole basis of addition - As regards the statement of Sh. Rajeev Gupta and Sh. Parmesh Kumar Garg was concerned, when assessee was confronted the assessee immediately filed affidavits of both the persons wherein they have clearly stated that the statements were recorded under duress and undue pressure - Hence, the same cannot be the basis of treating the purchase as bogus - It is further noted that Sh. Sat Narayan Gupta, the proprietor of M/s Chaavi Trading Company and Sat Narayan & Sons (HUF) had not given any statement - Hence, purchases from these companies cannot be treated as bogus. Applicability of Precedents Whether the Commissioner of Income Tax (A) was correct in holding that the assessee s case was not covered by the ratio of the judgement of Hon ble Supreme Court in the case of Sumati Dayal vs. C.I.T. 1995 (3) TMI 3 - SUPREME Court - The assessing officer relied on the case of Sumati Dayal v Commissioner of Income tax 1995 (3) TMI 3 - SUPREME Court -mentioned that if all, the surrounding circumstances indicated that the apparent was not real, the ratio of Hon ble Supreme Court would apply - Decided against Revenue.

Summary

Issues Involved:
1. Legality and correctness of the order of the Commissioner of Income Tax (Appeals).
2. Deletion of addition made by the Assessing Officer on account of bogus purchases.
3. Validity of the Commissioner of Income Tax (Appeals)' finding that the purchases were genuine.
4. Reliance on stock statements submitted by the assessee.
5. Applicability of the Supreme Court judgment in the case of Sumati Dayal vs. C.I.T.

Issue-wise Analysis:

1. Legality and correctness of the order of the Commissioner of Income Tax (Appeals):
The Revenue challenged the order of the Commissioner of Income Tax (Appeals) (CIT(A)) on the grounds that it was incorrect in law and facts. The CIT(A) had deleted the addition made by the Assessing Officer (AO) regarding bogus purchases. The Tribunal upheld the CIT(A)'s order, finding no infirmity in it and affirming its legality and correctness.

2. Deletion of addition made by the Assessing Officer on account of bogus purchases:
The AO had made an addition of Rs. 9,63,910/- to the assessee's income, alleging that the purchases were bogus. This conclusion was based on statements from various individuals, including Sh. Rakesh Gupta, Sh. Gaurav Gupta, Sh. Pramesh Kumar Garg, and Sh. Rajeev Gupta. The assessee contended that these purchases were genuine, supported by bills and payments made via account payee cheques. The CIT(A) found that the AO's reliance on these statements was not legally or factually tenable, especially since the statements were recorded under duress and without allowing cross-examination. The Tribunal agreed with the CIT(A), noting that the affidavits provided by the commission agents rebutted the AO's findings and supported the genuineness of the purchases.

3. Validity of the Commissioner of Income Tax (Appeals)' finding that the purchases were genuine:
The CIT(A) observed that the AO failed to appreciate that the purchases were made through commission agents and not directly from the suppliers. The affidavits from the commission agents stated that their earlier statements were made under duress. The CIT(A) also noted that the AO did not summon the commission agents post the affidavits submission, which further supported the assessee's claim. The Tribunal upheld the CIT(A)'s finding, emphasizing that the statements recorded under duress could not be the basis for treating the purchases as bogus.

4. Reliance on stock statements submitted by the assessee:
The AO questioned the validity of the stock statements submitted by the assessee, arguing that the assessee did not maintain a quantitative stock register. However, the CIT(A) found that the bills and purchases were undisputed, and the payments were made via account payee cheques. The Tribunal supported this view, stating that the assessee provided detailed bill-wise information linking fabric purchases to the manufacturing of garments and subsequent sales.

5. Applicability of the Supreme Court judgment in the case of Sumati Dayal vs. C.I.T.:
The AO cited the Supreme Court judgment in Sumati Dayal vs. C.I.T., arguing that the surrounding circumstances indicated that the apparent was not real. However, the CIT(A) and the Tribunal found that this case was not applicable. The Tribunal noted that the profit disclosed by the assessee was comparable to previous years, and there was no evidence to prove that the bills were bogus.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the purchases were genuine and the addition made by the AO was not justified. The Tribunal found that the AO's reliance on statements recorded under duress and without cross-examination was not a valid basis for treating the purchases as bogus. The Tribunal upheld the CIT(A)'s comprehensive analysis and findings, concluding that there was no infirmity in the CIT(A)'s order.