2016 (1) TMI 180 - AT - Income Tax

Addition of alleged bogus purchase - Held that - we are of the considered view that in the facts of the present case, where books of account of the assessee had not been rejected and in view of substantial evidence filed by the assessee in order to establish the purchases made from the said parties and where payments to the said concerns have been made by cheque, though after gap of time and where no evidence has been brought on record to establish that the cash has travelled back to the assessee, there is no merit in the orders of authorities below in holding the aforesaid purchases to be bogus. Accordingly, we reverse the order of CIT(A) in this regard and direct the Assessing Officer to allow the claim of purchases at 1,45,50,189/-. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of alleged bogus purchases amounting to Rs. 1,45,50,189/-.
2. Treatment of genuine suppliers as non-genuine by the lower authorities.

Detailed Analysis:

Issue 1: Addition of Alleged Bogus Purchases

The primary issue in this appeal is the addition made on account of bogus purchases totaling Rs. 1,45,50,189/-. The assessee, a partnership firm engaged in electrical works and reselling electrical items, reported a total income of Rs. 22,49,250/- for the assessment year 2009-10. The firm executed a sub-contract for M/s. S.T. Electricals Pvt. Ltd. for Maharashtra State Electricity Distribution Company Ltd., involving purchases from S.G. Enterprises and M/s. Steel Craft, amounting to Rs. 91,90,787/- and Rs. 53,59,402/- respectively.

The Assessing Officer (AO) found striking similarities in the bills from both suppliers, such as identical font and style, almost similar phone numbers, and the same address for the billed party. Notices under section 133(6) of the Income-tax Act were issued to both parties; one was returned undelivered, and the other was not responded to. Summons under section 131 were also issued but received no response. Field verification revealed no existence of the business establishments at the provided addresses, leading the AO to conclude that the purchases were inflated to decrease taxable income. Consequently, the AO disallowed the purchases and added Rs. 1,45,50,189/- to the total income of the assessee.

Issue 2: Treatment of Genuine Suppliers as Non-Genuine

The CIT(A) upheld the AO's findings, noting that the assessee failed to produce the suppliers or establish the genuineness of the transactions. The CIT(A) emphasized that having TAN, PAN, or filing returns electronically does not prove the genuineness of transactions, especially when the parties were not available at the given addresses and did not respond to notices. The CIT(A) concluded that the assessee did not discharge the onus of proving the genuineness of the transactions.

Appeal by the Assessee:

The assessee argued that both suppliers were assessed to tax and provided evidence of VAT returns reflecting purchases from them. Payments were made by cheques, and one supplier, M/s. S.G. Enterprises, provided a confirmation. The assessee contended that the delay in payments was due to delayed payments from the contractor, M/s. S.T. Electricals Pvt. Ltd. The assessee cited several judicial precedents, including CIT Vs. Nikunj Eximp Enterprises (P.) Ltd., to support their claim that the purchases were genuine.

Tribunal's Findings:

The Tribunal noted that the assessee had undertaken a sub-contract from M/s. S.T. Electricals Pvt. Ltd. for the supply and erection of cables and poles. The assessee provided detailed invoices, delivery challans, and payment details, which were made by cheques. The Tribunal observed that the AO did not reject the assessee's books of account and accepted purchases from other suppliers except for the two in question. The Tribunal found that the assessee had provided substantial evidence to establish the purchases, including PAN details, VAT returns, and bank statements showing payments to the suppliers.

The Tribunal referred to the Hon'ble Bombay High Court's decision in CIT Vs. Nikunj Eximp Enterprises (P.) Ltd., which held that purchases could not be disallowed merely because suppliers did not appear before the AO. The Tribunal also cited the Hon'ble Gujarat High Court's decision in CIT Vs. M.K. Brothers, which stated that purchases could not be held bogus solely based on delayed payments.

Conclusion:

The Tribunal concluded that the assessee had provided sufficient evidence to prove the genuineness of the purchases and that there was no merit in the lower authorities' findings. The Tribunal reversed the CIT(A)'s order and directed the AO to allow the claim of purchases amounting to Rs. 1,45,50,189/-. The appeal of the assessee was allowed.

Order Pronounced on 29th December, 2015.