2017 (2) TMI 217 - AT - Income Tax

Bogus purchases - Held that - AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from the Sales Tax Department or the sworn statement of the parties before the Sales Tax Department, without affording the assessee any opportunity to cross examine those witnesses in this regard or the fact that these parties did not respond to notice under section 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition. If the AO doubted the genuineness of this said purchases, it was incumbent upon him to cause further inquiries in the matter to ascertain the genuineness or otherwise of the transactions. Without causing any further enquires in respect of the said purchases, the AO cannot make the said addition on account of bogus purchases by merely relying on information obtained from the Sales Tax Department, the statement/affidavit of third parties without the assessee being afforded any opportunity of cross examination of that persons and for non-response to notices under section 133(6) of the Act. In the factual matrix of the case, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the purchase transactions, the action of the AO in ignoring these evidences cannot be accepted - Decided against revenue

Summary

Issues:
- Treatment of purchases as unexplained/bogus
- Justification of addition of bogus purchases
- Adequacy of evidence to prove purchases as bogus

Issue 1: Treatment of purchases as unexplained/bogus

The case involved an appeal by the Revenue against the order of the CIT(A)-34, Mumbai for A.Y. 2010-11. The assessee, engaged in trading hardware items, declared total income for the year but faced scrutiny due to purchases from alleged suppliers flagged by the Sales Tax Department. The Assessing Officer (AO) treated these purchases as bogus, adding them to the assessee's income. The AO's decision was based on lack of response from suppliers to notices and failure to prove genuineness. The CIT(A) allowed the appeal, citing a Tribunal decision that additions solely on Sales Tax Department information without independent inquiries are not sustainable.

Issue 2: Justification of addition of bogus purchases

The Revenue appealed the CIT(A)'s decision, arguing that non-response from suppliers to notices and lack of verified documentary evidence rendered the purchases questionable. The Revenue contended that the AO was justified in treating the purchases as bogus and taxing them. However, upon review, the Tribunal found that the AO's reliance on Sales Tax Department information and lack of further inquiries was insufficient. The Tribunal highlighted that the assessee provided evidence of genuine purchases, including banking transactions and sales records, while the AO did not doubt the sales. The Tribunal emphasized that without conclusive evidence, treating purchases as bogus was unwarranted.

Issue 3: Adequacy of evidence to prove purchases as bogus

The Tribunal, after considering the material on record and legal precedents, concluded that the AO failed to establish conclusively that the purchases were bogus. Mere reliance on third-party statements and non-response to notices without cross-examination was deemed insufficient. The Tribunal noted the assessee's efforts to prove the purchases' genuineness through documentation and proper banking channels. Referring to relevant court decisions, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal emphasized the necessity for thorough inquiries before treating transactions as bogus and highlighted the importance of providing the assessee with opportunities for cross-examination.

In conclusion, the Tribunal dismissed the Revenue's appeal for A.Y. 2010-11, emphasizing the importance of thorough investigations and the need for conclusive evidence before treating transactions as bogus. The case underscored the significance of providing the assessee with opportunities to present evidence and cross-examine witnesses to ensure fair assessment practices.