2016 (2) TMI 665 - AT - Income Tax

Disallowance of loss suffered in trading of foam and fabrics - CIT (A) had deleted the said addition on the basis that complete books of accounts were produced examined and verified on test-check basis - Held that - All the transactions of purchases were duly confirmed and 90% of the sales are also confirmed. However the plea of the DR which was accepted by the Tribunal was that the evidences accepted had not been considered by the AO thus the AO in the second round ought to have examined the aforesaid evidence and arrived at a conclusion. However it is noticed that the AO has simply borrowed the conclusion from the original order of assessment. This approach is in blatant disregard of the own stand of the Revenue before the Tribunal in the first round. Thus to this extent the approach of the AO is patently erroneous. Now coming to the merits of the matter it is seen that assessee has declared sales of 2, 39, 24, 400/- and purchase of 3, 37, 29, 782/-. The transactions are duly recorded in the books of accounts which have been examined and accepted in the first round by CIT (A) and no specific observation vis- -vis the said books of accounts by the AO in the second round. Moreover these are audited books of accounts. The case of the AO is that new addresses of the parties have not been furnished. In our opinion without carrying out any investigation in respect of evidences on record such a conclusion is perverse. Further nonproduction of stock-register or rates by itself cannot be a ground to reject the confirmations furnished by the assessee in which PAN number/Ward number address of parties details of the transactions have been mentioned. No doubt claiming a loss on purchase and sale to the same party may result into a doubt but such a doubt without any verification or investigation vis- -vis the evidence tendered does not acquire the character of evidence so as to hold that the trading transactions are bogus or sham. More-so when the Revenue had requested for examination of the evidence and such request was accepted by the Tribunal in the first round and yet AO failed to carry out investigation. Thus this is a case of lack of investigation which vitiates the adverse conclusion drawn by the AO. We therefore see no reason to deviate from the conclusion of the first appellate authority. - Decided against revenue

Summary

Issues:
Appeal against deletion of addition on account of disallowance of loss in trading of foam and fabrics and non-production of necessary books of accounts and vouchers for verification.

Analysis:
1. The revenue contested the deletion of an addition of Rs. 97,85,383 made on account of disallowance of loss in trading of foam and fabrics, and failure to produce necessary books of accounts and vouchers despite multiple opportunities provided by the AO. The CIT (A) had allowed the appeal of the assessee in the first round, prompting the revenue to file an appeal before the ITAT.

2. The AO, following the directions of the Tribunal, requested the assessee to provide details and produce complete books of accounts with vouchers. Despite repeated opportunities, the assessee failed to produce the required evidence. The AO concluded that no genuine business activity had taken place, as no new evidence was presented to substantiate the sales and purchases claimed by the assessee, leading to the addition of Rs. 97,87,382 as a disallowance of loss in trading of foam and fabrics.

3. The CIT (A) in the first round had deleted the addition after considering the submissions and evidence provided by the appellant. The CIT (A) observed that the AO had not discharged the onus of proving the genuineness of the sales and purchases, and the appellant's submissions were found valid. Confirmations from suppliers and buyers were produced, and the AO's rush to complete the assessment without due consideration of evidence was noted.

4. During the appeal before the ITAT, the revenue argued that the transactions were not genuine, citing a lack of physical transactions and the modus operandi of bogus purchases and sales. The revenue urged the reversal of the CIT (A)'s order and restoration of the AO's decision.

5. The assessee, on the other hand, reiterated that the books of accounts were not rejected, and detailed qualitative and quantitative details of sales and purchases were provided. The assessee highlighted the physical movements of goods and the genuine nature of transactions, attributing the heavy losses to the initial year in the fabric business.

6. The ITAT upheld the CIT (A)'s decision, noting that the AO's failure to investigate the evidence presented and reliance on the original assessment order without due consideration of the appellant's submissions rendered the AO's approach erroneous. The ITAT found no infirmity in the CIT (A)'s order and dismissed the revenue's appeal.

In conclusion, the ITAT upheld the deletion of the addition on account of disallowance of loss in trading of foam and fabrics, emphasizing the importance of thorough investigation and consideration of evidence in assessments to ensure fair and just outcomes.