2016 (11) TMI 539 - HC - Income Tax

Bogus purchases - whether the purchases which has been done from Vinayak Overseas is genuine or not? - Held that - AO as already considered by the CIT (A) has confirmed the finding and Vinayak Overseas has specifically contended that they were not transfer by Vinayak Overseas and they were absconding. The Tribunal only on the statement of M.P. Sharma who was power of attorney holder of Vinayak Overseas has given the finding. In our view, the finding is perverse. The view taken by the Tribunal is required to be reversed. Apart from that merely voucher of the import export chanals or chanals of the custom clearance will not prove physical delivery of the material (precious stones). There is nothing on record to certify the stones which were verified by any of the valuer. In our view it is all paper transactions for the purpose of taking benefit of the export and tax benefits. Thus as it is a bogus purchase the finding which has been arrived by the Tribunal is not in consonance with the provisions of law - Decided in favour of revenue

Summary

Issues:
Challenging Tribunal's decision on confirming CIT (A) order, relying on books of accounts, adjusting MAT credit before interest charge.

Analysis:
1. The appellant challenged the Tribunal's decision that reversed the CIT (A) order confirming the A.O.'s decision and allowed the appeal. The Court framed substantial questions of law regarding the ITAT's alleged perverse actions in deleting additions without considering relevant provisions and circulars.

2. The AO found the assessee firm engaged in the business of precious stones did not maintain quantitative purchase details and made purchases from entities later found to be bogus. Despite various opportunities, the assessee failed to produce the suppliers, leading the AO to conclude the purchases were bogus.

3. The appellant contended the Tribunal erred in relying on the power of attorney holder's statement to reverse the A.O. and CIT (A) findings. Citing various High Court decisions, the appellant argued the Tribunal's decision was not in line with the requirement to prove identity, creditworthiness, and genuineness of transactions.

4. The Court referred to precedents emphasizing the burden on the assessee to prove the legitimacy of transactions, highlighting the need to establish the identity of creditors and the genuineness of transactions. Mere payment through bank accounts was deemed insufficient to validate transactions without proper verification.

5. The Court further discussed the importance of verifying the credibility of alleged sellers, noting discrepancies in addresses and transactions, which were crucial in determining the genuineness of purchases. The Tribunal's failure to consider relevant materials led to a decision contrary to the facts on record.

6. After hearing the appellant's counsel, the Court concluded that the purchases from Vinayak Overseas were bogus, lacking physical verification of the precious stones. The transactions were deemed paper transactions for export and tax benefits, requiring the Tribunal's decision to be reversed.

7. Ultimately, the Court upheld the CIT (A) decision, deeming the purchases as bogus and not in compliance with the law. The issue was resolved in favor of the Department against the assessee, and the appeal was allowed accordingly.