2019 (1) TMI 990 - AT - Income Tax

Unexplained machinery expenditure u/s 69C - failure of the assessee to produce the said party issuing bills - Held that - Held that - Revenue is not justified in treating the bills issued by the fifth party as bogus merely because of the failure of the assessee to produce the said party before him for verification, especially when the overwhelming evidence was produced by the assessee in the form of relevant bills, payments by cheque, tax deduction at source, etc. to support and substantiate his claim for the corresponding machinery expenses. As a matter of fact, the assessee even filed the copies of PAN Cards of these parties to establish their identity before the CIT(Appeals) and although the CIT(Appeals) accepted the factum of machinery expenses incurred by the assessee on the basis of the supporting evidence, he treated the bills issued by the concerned three parties as bogus on the basis of unfounded doubts expressed by the AO and sustained the addition to the extent of profit on estimated basis. Having regard to all the facts of the case as well as the evidence placed on record by the assessee, we are of the view that the ld. CIT(Appeals) ought to have deleted the addition made by the Assessing Officer on account of the alleged bogus machinery expenses when the claim of the assessee for such expenses was duly supported by the relevant and cogent evidence - Decided in favour of assessee.

Summary

Issues involved: Addition of alleged bogus purchases in the assessment.

Analysis:

1. Background and Facts: The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the addition of ?6,36,690/- made by the Assessing Officer on account of alleged bogus purchases, which was partially sustained by the Commissioner of Income Tax (Appeals) to the extent of ?95,504/-.

2. Assessee's Business and Assessment: The assessee, an individual engaged in the business of manufacturing and trading of tea machinery items, filed the return of income declaring total income of ?5,87,540/-. During assessment proceedings, the Assessing Officer examined the machinery expenses claimed by the assessee.

3. Assessing Officer's Actions: The Assessing Officer issued letters under section 133(6) to selected parties, but they were returned unserved. The assessee submitted details and ledger accounts of parties, and produced four out of five parties for verification. However, the Assessing Officer treated bills for machinery expenses as bogus and made an addition of ?6,36,690/- under section 69C.

4. Appeal before CIT(Appeals): The assessee challenged the addition before the CIT(Appeals) by providing bills, ledger accounts, and PAN Cards of parties. The CIT(Appeals) observed that the purchases were likely from the grey market and estimated profit at 15%, sustaining the addition to the extent of ?95,504/-.

5. Tribunal's Decision: The Tribunal found that the assessee had provided substantial evidence to support the machinery expenses claim. Despite the doubts raised by the Assessing Officer, the Tribunal held that there was no valid reason to doubt the identity of the parties or the genuineness of the expenses. The Tribunal concluded that the addition made by the Assessing Officer and sustained by the CIT(Appeals) was unjustified, and therefore, deleted the addition, allowing the appeal of the assessee.

6. Conclusion: The Tribunal set aside the addition of alleged bogus purchases, emphasizing that the assessee had provided satisfactory evidence to support the expenses claimed. The decision highlighted the importance of considering all evidence before making additions based on unfounded doubts.