2018 (9) TMI 959 - AT - Income Tax

Addition on bogus purchases - Held that - Commissioner of Income Tax (A) was not correct in sustaining the disallowance to the tune of 25% of the alleged bogus purchase when the very basis on which the bogus purchases have been alleged to have been made does not stand in view of the retraction of statement by Shri Rajendra Jain as well as the voluminous documentary evidences which were filed by the assessee before the lower authorities and which substantiate the genuineness of the purchases from M/s Avi Exports. Under the circumstances, we are unable to concur with the findings of the lower authorities and we deem it fit to set aside the order of the Ld. Commissioner of Income Tax (A) and direct the Assessing Officer to delete the addition with respect to the alleged bogus purchases. - Decided in favour of assessee Addition on account of ROC fee - Held that - In view of the order of the ITAT Mumbai Bench in the case of Navi Mumbai SEZ (P) Ltd. vs. ACIT 2015 (3) TMI 314 - ITAT MUMBAI we deem it fit to restore the issue to the file of the Assessing Officer to examine the contention of the assessee that the incremental share capital was used for the purpose of working capital and, thereafter, allow the claim of the assessee if the assertion of the assessee is found to be correct, after giving proper opportunity to the assessee to present its case. Thus, this ground stands allowed for statistical purposes.

Summary

Issues Involved:
1. Legality of the notice issued u/s 143(2) and the assessment order passed u/s 143(3).
2. Disallowance of ?30,01,478/- for alleged bogus purchases from M/s Avi Exports.
3. Disallowance of ?1,00,500/- on account of ROC fee.
4. Initiation of penalty proceedings u/s 271(1)(c).

Issue-wise Detailed Analysis:

1. Legality of the notice issued u/s 143(2) and the assessment order passed u/s 143(3):
The assessee contended that the notice issued u/s 143(2) and the assessment order passed u/s 143(3) were illegal and void ab initio. The argument was based on the fact that any material unearthed during search operations or any statement made during the course of search should lead to proceedings u/s 153C and subsequent assessment u/s 153A. The assessee argued that the assessment pending on the date of initiation of the search should abate, and the provisions of Sec. 153C should be strictly complied with, including the recording of satisfaction by the AO of the searched person and the other person. The tribunal did not specifically address this issue in the final judgment, focusing instead on the substantive issues of disallowance.

2. Disallowance of ?30,01,478/- for alleged bogus purchases from M/s Avi Exports:
The Assessing Officer (AO) disallowed ?30,01,478/- based on a letter from Central Circle-4, Surat, which indicated that the Rajendra Jain group provided bogus bills for trading transactions. The AO made this addition despite the retraction of the statement by Shri Rajendra Jain, the proprietor of M/s Avi Exports. The assessee provided various documents, including stock registers, quantitative reconciliation statements, ledger accounts, bank statements, and affidavits to substantiate the genuineness of the purchases. The tribunal noted that the lower authorities disregarded these documents without assigning any reason. Importantly, the tribunal highlighted that the department accepted the sales as genuine but doubted the purchases, which lacked a cogent reason. Consequently, the tribunal set aside the order of the Ld. Commissioner of Income Tax (A) and directed the AO to delete the addition related to the alleged bogus purchases.

3. Disallowance of ?1,00,500/- on account of ROC fee:
The AO disallowed ?1,00,500/- claimed as a deduction for ROC fees paid to enhance the authorized share capital, considering it capital in nature. The assessee argued that the incremental share capital was used for meeting working capital requirements, thus qualifying as revenue expenditure. The tribunal referred to the ITAT Mumbai Bench's decision in Navi Mumbai SEZ (P) Ltd. vs. ACIT, which allowed such expenditure as revenue if the incremental share capital was used for trading stock. The tribunal restored the issue to the AO to verify if the incremental share capital was indeed used for working capital and to allow the claim if the assertion was found correct.

4. Initiation of penalty proceedings u/s 271(1)(c):
The tribunal did not specifically address the issue of the initiation of penalty proceedings u/s 271(1)(c) in the final judgment, as the primary focus was on the disallowances and their justifications.

Conclusion:
The tribunal allowed the appeal of the assessee, directing the deletion of the addition related to the alleged bogus purchases and restoring the issue of ROC fee disallowance to the AO for further examination. The decision emphasized the importance of considering all documentary evidence and provided clear directions for reassessment based on the facts presented.