2017 (5) TMI 632 - AT - Income Tax

Bogus purchases - Held that - As decided in assessee s own case for previous AY 2010-11 AO made addition without any basis and the Id. CIT(A) after proper consideration of facts and circumstances and after allowing opportunity to present their respective stands to the A.O as well as to the assessee dismissed the disallowance and there was no reason to disallow interest to the companies from whom the purchases were made. Consequently, we are unable to seen any ambiguity, perversity or any other valid reason to interfere with the impugned order and thus we uphold the same - Decided in favour of assessee. Disallowance of loss on bogus trading - Held that - Since we have held that the purchases made from Colourshop Trading Co. Pvt. Ltd. and M/s Induja Traders Pvt. Ltd. are not bogus purchases, the sales made out of such purchases cannot be treated as bogus sales. It is ordered accordingly. Disallowance of interest paid to Hawala operators - Held that - The AO, in the previous year, when the loan was received had not disallowed same as not genuine, having not disallowed the principal as not genuine, there is no justification for making any disallowance of interest paid to the above parties. It is also relevant to mention that interest was paid to above mentioned parties for the Assessment Year 2010-11. For identical reason the Assessing Officer had disallowed the interest paid for A.Y. 2010-11. The disallowance made by the Assessing Officer for Assessment Year 2010- 11 was deleted by the CIT(A) and same was confirmed by the Tribunal. Thus we hold that the Assessing Officer is not justified in disallowing interest paid.

Summary

Issues Involved:
1. Reliance on the appellate order for A.Y. 2010-11 for A.Y. 2011-12.
2. Deletion of addition on account of bogus purchases (?8,04,00,979/-).
3. Deletion of disallowance on account of loss on bogus trading (?1,83,17,200/-).
4. Deletion of disallowance on account of interest paid to Hawala operators (?5,27,641/-).

Issue-wise Detailed Analysis:

1. Reliance on the Appellate Order for A.Y. 2010-11 for A.Y. 2011-12:
The Revenue contended that the CIT(A) erred in relying on the appellate order for A.Y. 2010-11 while deciding the appeal for A.Y. 2011-12, despite new facts brought by the AO. The Tribunal noted that the facts considered in the assessee's case for A.Y. 2010-11 were identical to those of the current assessment year. Since the Tribunal had upheld the CIT(A)'s order for A.Y. 2010-11, and there was no reversal by the High Court, it upheld the CIT(A)'s decision for A.Y. 2011-12.

2. Deletion of Addition on Account of Bogus Purchases (?8,04,00,979/-):
The AO had added ?8,04,00,979/- as bogus purchases based on information from Maharashtra sales tax authorities, which indicated that the suppliers were commission agents issuing fake bills. The CIT(A) allowed the appeal, relying on the order for A.Y. 2010-11. The Tribunal observed that the assessee provided quantitative details, purchase invoices, and evidence of payments through banking channels. The AO did not bring any evidence to show that the money paid for purchases was not genuine. The Tribunal upheld the CIT(A)'s order, noting that the AO's reliance on an affidavit from a former director of the supplier, who was not in a position to comment on transactions during the relevant period, was misplaced. The Tribunal emphasized that the AO had not allowed cross-examination of the deponent and had not conducted independent investigations.

3. Deletion of Disallowance on Account of Loss on Bogus Trading (?1,83,17,200/-):
The AO treated the sales made from the allegedly bogus purchases as bogus, resulting in a disallowed loss of ?1,83,17,200/-. The CIT(A) allowed the claim, noting that the AO's inference of sham transactions was not substantiated by any corroborating material. The Tribunal upheld the CIT(A)'s decision, stating that since the purchases were not bogus, the resultant sales and the loss could not be treated as bogus.

4. Deletion of Disallowance on Account of Interest Paid to Hawala Operators (?5,27,641/-):
The AO disallowed ?5,27,641/- in interest paid to four parties, alleging they provided accommodation entries. The CIT(A) deleted the disallowance, referencing a similar decision for the preceding assessment year. The Tribunal noted that the AO had not disallowed the principal amount of the loan in the previous year, making the disallowance of interest unjustified. The Tribunal also referenced its earlier decision for A.Y. 2010-11, where a similar disallowance was deleted. Consequently, the Tribunal upheld the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds, including the reliance on the appellate order for A.Y. 2010-11, deletion of additions for bogus purchases, trading loss, and interest paid to alleged Hawala operators.