2017 (6) TMI 444 - AT - Income Tax

Bogus purchases - genuineness of transaction - Held that - In this case the assessing officer has made the addition due to the reason that the persons to whom the payment for the expenditure were claimed to be made could not be located. Despite several opportunities the assessee has failed to substantiate the claim. Upon assessee s appeal learned CIT-A has obtained a report from the assessing officer. After detailed finding from the assessing officer regarding the additional evidences learned CIT-A has deleted the part of the addition and sustained the rest as the assessee could not substantiate the rest of the claim. In our considered opinion there is no infirmity in the order of learned CIT-A. It is based upon correct appreciation of the facts and the evidences brought by the Assessing Officer on record. Hence we uphold the order of learned CIT-A. - Decided against assessee.

Issues:
1. Addition under section 69C of the Income tax Act - Bogus purchases
2. Failure to furnish confirmations from creditor parties
3. Assessment based on conjecture and suspicion
4. Responsibility for producing creditor parties without summons
5. Ignoring explanations and evidences submitted
6. Lack of control over creditors for non-reply to notice
7. Arbitrary additions without basis
8. Applicability of section 69C of the Act
9. Appeal for deletion of additions and opportunity to be heard

Issue 1: Addition under section 69C of the Income tax Act - Bogus purchases
The Assessing Officer (AO) observed discrepancies in creditor balances and non-receipt of replies from creditor parties, leading to an addition of ?1,04,76,814 under section 69C of the Income Tax Act. The appellant contested this addition, arguing no inaccurate particulars were furnished. The AO's decision was based on lack of confirmations from parties, raising doubts on the genuineness of transactions. The appellant failed to provide adequate evidence to substantiate the expenses, leading to disallowance under section 37(1) of the Act. The AO initiated penalty proceedings under section 271(1)(c) for inaccurate particulars of income.

Issue 2: Failure to furnish confirmations from creditor parties
The appellant failed to produce confirmations from various parties despite ample opportunities and notices issued under section 133(6) of the Act. The absence of replies from most parties, along with discrepancies in transactions, led to the AO's decision to disallow expenses. The appellant's submission of ledger accounts, bills, and TDS certificates was deemed insufficient to prove the genuineness of transactions, resulting in the disallowance under section 37(1) of the Act.

Issue 3: Assessment based on conjecture and suspicion
The appellant argued that the assessment was completed based on conjecture and mere suspicion, lacking material or basis. However, the AO's decision was supported by the appellant's failure to provide necessary confirmations and evidence to substantiate transactions. The AO's reliance on section 133(6) notices and the appellant's inability to prove the genuineness of expenses justified the assessment.

Issue 4: Responsibility for producing creditor parties without summons
The AO was criticized for making the appellant responsible for producing creditor parties without issuing summons under section 131 of the Act. However, the AO's actions were deemed appropriate given the lack of cooperation from the appellant in providing confirmations and reconciling discrepancies in transactions.

Issue 5: Ignoring explanations and evidences submitted
The appellant contended that the CIT(A) erred in ignoring explanations and evidences submitted during assessment proceedings. However, the CIT(A) based the decision on the appellant's failure to substantiate expenses with proper confirmations and evidence, leading to the disallowance of claims.

Issue 6: Lack of control over creditors for non-reply to notice
The appellant argued that they lacked direct control over creditors who did not reply to notices under section 133(6) of the Act. Despite this, the appellant was expected to provide confirmations to prove the genuineness of transactions. The failure to obtain confirmations raised doubts about the legitimacy of expenses.

Issue 7: Arbitrary additions without basis
The appellant claimed that the CIT(A) made arbitrary additions without any basis. However, the additions were supported by the lack of confirmations and evidence from the appellant to validate the transactions, justifying the decisions made by the AO and CIT(A).

Issue 8: Applicability of section 69C of the Act
The appellant argued that the provisions of section 69C of the Act were not applicable to their case, seeking the deletion of the addition. However, the AO's decision to invoke section 69C was based on the lack of substantiation of expenses and genuineness of transactions, leading to the disallowance.

Issue 9: Appeal for deletion of additions and opportunity to be heard
The appellant appealed for the deletion of additions and requested an opportunity to be heard. Despite the appellant's claims, the AO and CIT(A) found the lack of confirmations and evidence to support the expenses, justifying the disallowances made. The appellant's failure to substantiate transactions led to penalties under the Act, highlighting the importance of providing accurate particulars and evidence in tax assessments.

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