2017 (11) TMI 455 - AT - Income Tax

Bogus purchases - assessee was failed to produce GRN / Lorry receipt to prove the actual purchaser of the goods - Held that - As per learned AR the assessee has placed oral order for the purchase of the goods from the Seller and the same were delivered at the site by the seller as mentioned in the Delivery Challans. Since the transport related cost was borne by the seller, the assessee does not have GR or Lorry receipt. It was further submitted that the details of purchase, invoice, challans, quantity details, payment evidence, etc were filed during the course of assessment proceedings. It was also submitted that assessee had filed a stock/inventory/consumption summary mentioning the details of purchases made (including the purchases made from the seller) from the beginning of the project till 31 March 2010. The learned AO had not disregarded the said quantity details of purchases and made the additions. Considering all we restore this addition back to the file of the AO for deciding afresh after giving due opportunity to the assessee. We direct accordingly. As the addition has been made in the A.Y.2010-11 and corresponding closing stock for the A.Y.2010-11 which is opening stock for A.Y.2011-12 has already been given effect, the addition so made in the A.Y.2011-12, appears to consequential in nature. AO is directed to verify the same and pass order afresh as per law. We direct accordingly.

Summary

Issues Involved:
1. Disallowance of ?20,00,000 from current year's purchases as non-genuine and unexplained expenditure.
2. Re-computation of work-in-progress (WIP) for the financial years under consideration.
3. Verification of the opening stock for A.Y. 2011-12 based on the closing stock of A.Y. 2010-11.

Issue-wise Detailed Analysis:

1. Disallowance of ?20,00,000 from Current Year's Purchases:
The assessee challenged the disallowance made by the Assessing Officer (AO) of ?20,00,000 from the current year's purchases, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO found that the purchases from Karma Ispat Limited were non-genuine and unexplained. The assessee provided purchase invoices and delivery challans but failed to produce Lorry Receipts or Goods Receipt Notes (GRN). The CIT(A) confirmed the disallowance, citing the assessee's inability to prove the actual purchases and relying on judgments from the Hon'ble Punjab & Haryana High Court and the Hon'ble Supreme Court.

2. Re-computation of Work-in-Progress (WIP):
The AO re-computed the WIP by deducting the amount of bogus purchases from Karma Ispat Limited. For A.Y. 2010-11, the AO reduced the opening WIP by ?96,88,752 and the closing WIP by ?20,00,000, resulting in a revised WIP of ?25,94,60,286. The CIT(A) partially disagreed with the AO, stating that the opening WIP for A.Y. 2010-11 could not be re-computed as it had already been accounted for in the previous year. The CIT(A) allowed the assessee's appeal concerning the ?96,88,752 but upheld the ?20,00,000 disallowance.

3. Verification of Opening Stock for A.Y. 2011-12:
The Tribunal noted that the addition of ?20,00,000 in A.Y. 2010-11 would affect the closing stock, which is the opening stock for A.Y. 2011-12. The Tribunal directed the AO to verify the opening stock for A.Y. 2011-12 and pass an order afresh as per law, considering the consequential nature of the addition.

Conclusion:
The Tribunal restored the issue of the ?20,00,000 addition back to the AO for fresh consideration, giving the assessee an opportunity to present evidence. The appeal was allowed in part for statistical purposes, and the AO was directed to verify the opening stock for A.Y. 2011-12 based on the revised closing stock for A.Y. 2010-11. The order was pronounced in the open court on 25/09/2017.