2017 (2) TMI 796 - AT - Income Tax

Addition u/s 69C - bogus purchases - Held that - CIT(A) has considered the contention of the assessee that there was no material before the AO to doubt the genuineness of payments made by assessee through bank challan. The ld. CIT(A) has examined the entire transaction and observed that the onus to prove that transaction is genuine is on the tax payer/assessee when he is making the claim when the Department doubted the genuinity on the basis of enquiries conducted by Sales Tax Department. The ld. CIT (A) has observed that AO himself said that doubt is not the quantity of perse but the purchases were billed through bogus purchases. After examining the gross profit declared by the assessee, the ld. CIT(A) sustained the disallowance which was offered by assessee before the Settlement Commission and thus granted partial relief. We have seen that order of CIT(A) is reasoned one and does not require any further interference at our end. Hence, the appeal of the Revenue is dismissed.

Issues:

1. Disallowance of addition of ?2,38,32,673 as profit on bogus purchases under section 69C of the Income Tax Act.
2. Failure to produce parties before the Assessing Officer and lack of evidence to substantiate actual delivery of goods purchased.
3. Disallowance made by the Assessing Officer based on investigation findings and statement of parties.
4. Assessment of additional income by the Settlement Commission and subsequent disallowance by the Commissioner of Income Tax (Appeals).

Issue 1: Disallowance of Addition on Bogus Purchases

The case involved an appeal by the Revenue and a Cross Objection by the assessee against the order of the Commissioner of Income-Tax (Appeals) for the Assessment Year 2010-11. The Revenue contested the reduction of addition of ?2,38,32,673 to ?37,63,260 under section 69C of the Act. The assessee, a civil contractor, filed additional income before the Settlement Commission due to disputed bogus purchases. The Assessing Officer disallowed the sum on account of bogus purchases, which was later restricted by the Commissioner of Income-Tax (Appeals). The Revenue challenged this reduction, while the assessee sought the deletion of the entire disallowance.

Issue 2: Failure to Produce Parties and Lack of Substantiating Evidence

During the assessment proceedings, the Assessing Officer requested details of parties from whom purchases were made. The assessee provided the details, but the parties were found to be listed as bogus/hawala dealers by the Sales Tax Department. Notices issued to these parties were returned unserved, and subsequent inquiries revealed they were involved in providing accommodation entries. The assessee argued that the purchases were genuine, supported by payments through bank challan and consumption in contracts with the Municipal Corporation. However, the Assessing Officer disallowed the purchases due to lack of delivery challans, transportation evidence, and stock register details. The Commissioner of Income-Tax (Appeals) considered the genuineness based on bank transactions but sustained the disallowance partially, citing the onus on the taxpayer to prove the transactions' authenticity.

Issue 3: Disallowance Based on Investigation Findings

The Revenue relied on investigation findings and statements of third parties to support the disallowance of purchases. The Sales Tax Department's website listed the parties as involved in bogus billing, and postal authorities confirmed their unavailability at provided addresses. The Assessing Officer disallowed purchases from all parties, leading to the appeal. The Commissioner of Income-Tax (Appeals) upheld the disallowance based on the taxpayer's responsibility to prove genuine transactions, despite the lack of concrete evidence to doubt the payments made by the assessee.

Issue 4: Assessment by Settlement Commission and Subsequent Disallowance

The assessee's initial approach to the Settlement Commission on the matter of bogus purchases resulted in additional income declaration. However, the Settlement Commission's application was deemed invalid, leading to the resumption of assessment proceedings. The Commissioner of Income-Tax (Appeals) sustained the disallowance based on the additional income offered before the Settlement Commission, granting partial relief to the assessee. The appeal by the Revenue and the Cross Objection by the assessee were both dismissed, upholding the Commissioner's decision.

In conclusion, the judgment addressed the issues of disallowance of bogus purchases, lack of substantiating evidence, reliance on investigation findings, and assessment by the Settlement Commission. The decision upheld the partial disallowance based on the taxpayer's onus to prove genuine transactions and the Commissioner's reasoned consideration of the case.

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