2017 (12) TMI 803 - AT - Income Tax

Bogus purchases - addition on inflated purchases - Held that - AO has assessed five assessment years and found discrepancies only in two AYs relevant to AY 2008-09 and 2013-14 and none of the regular suppliers have denied that they have sold material to assessee nor have they accepted to have issued any accommodation entries. By considering the above discussion, in our considered view, there is no cogent material in support of the findings of AO that assessee has in fact recorded any bogus purchases and it is clear from the submission of the assessee that these are actual wastages incurred by the assessee in its business and also assessee has declared scrap sale for the value of wastage to the extent of ₹ 90,63,070/-, which is much higher than the alleged value of inflated invoices. Hence, we are in agreement with the findings of the CIT(A) in deleting the addition made by the AO on this count and accordingly, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue.

Issues Involved:

1. Reopening of assessment.
2. Alleged inflation of purchases.
3. Discrepancies found during survey operation.
4. Treatment of wastage in paper as inflated purchases.
5. Validity of the additions made by the Assessing Officer (AO).

Detailed Analysis:

Reopening of Assessment:

The assessee filed a return of income for AY 2008-09 on 29/08/2008, which was processed under section 143(1) of the Income-tax Act, 1961. A survey under section 133A was conducted on 02/09/2014, revealing that the company was raising bogus purchase bills. Consequently, the AO obtained necessary approval and issued a notice under section 148 on 23/03/2015 to reopen the assessment. The assessee filed a return of income on 12/05/2015 in response to this notice.

Alleged Inflation of Purchases:

During the survey, discrepancies were found in the recording of bills and material receipts. The AO relied on these findings and statements recorded under section 131 of the Act, concluding that the company had inflated purchases to cover up wastage material. The AO disallowed the value of the wastage recorded by the assessee, treating it as inflated purchases.

Discrepancies Found During Survey Operation:

The AO pointed out specific instances of discrepancies in the assessment order, such as invoices from ECC Trading Pvt. Ltd. and Mittal Trading Company. However, these discrepancies were limited to certain financial years and did not cover all the assessment years under appeal.

Treatment of Wastage in Paper as Inflated Purchases:

The CIT(A) observed that the AO treated the wastage in paper as inflation in purchases, assuming that the wastage should be NIL. The assessee provided quantitative particulars of paper sold as scrap, which was credited to the profit & loss account. The CIT(A) noted that the weight of paper sold as scrap was more than the wastage suffered during printing, and the sale of scrap included paper supplied by customers for job work. The CIT(A) found that the AO’s assumption of NIL scrap generation was inconsistent with the facts.

Validity of the Additions Made by the AO:

The CIT(A) found that the quantitative particulars of purchases, sales, opening and closing stocks, reprints, and rejections provided by the assessee were correct. The discrepancies highlighted by the AO were limited to a few instances and did not justify treating the entire purchases as inflated. The CIT(A) noted that the assessee had shown a wastage percentage below the industrial average and accounted for scrap sales. The CIT(A) concluded that the AO’s additions were not based on material evidence and directed the deletion of the additions for all assessment years under appeal.

Conclusion:

The Tribunal upheld the CIT(A)’s findings, agreeing that the AO’s conclusions were not supported by cogent material evidence. The Tribunal dismissed the revenue’s appeals for all assessment years, affirming that the additions made by the AO were unjustified and not sustainable. The appeals of the revenue were dismissed, and the order of the CIT(A) was upheld.

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